The US unemployment rate is expected to have inched back down to its pre-pandemic level in May, despite the monthly pace of jobs growth being forecast to slow slightly, as employers grapple with a historically tight labour market.
Employers in the world’s largest economy are set to have added 325,000 jobs in May, according to a consensus forecast compiled by Bloomberg, a slightly slower pace than the 428,000 positions created during the previous period but vigorous enough to push the unemployment rate down further.
The jobless rate is expected to have fallen to 3.5 per cent, matching the level it stood at in February 2020 before the coronavirus pandemic spread globally.
Despite these gains, the rapid recovery of the US labour market — which has far outpaced the sluggish bounceback that characterised the post-global financial crisis period — has been overshadowed in large part by the highest inflation in four decades.
With roughly 1.9 vacant positions for every unemployed worker, there are also broad concerns that a prolonged shortfall of people willing to join the labour force will continue to keep upward pressure on prices as employers are forced to raise wages and improve benefits in order to attract new hires and keep those already on payroll.
The data, which will be released by the Bureau of Labor Statistics at 8.30am Eastern Time on Friday, is not expected to show a significant improvement in the share of Americans either employed or looking for work — otherwise known as the labour-force participation rate — but may feature another pick-up in monthly wage growth.
Average hourly earnings in May are set to rise 0.4 per cent or 5.2 per cent on an annual basis. That is slightly slower than the 5.5 per cent pace registered in April.
President Joe Biden has said tackling high inflation is his administration’s top priority, a message he has sought to fortify in recent days. Earlier this week, he met with Jay Powell, chair of the Federal Reserve, and reiterated his support for the US central bank to do what it takes to contain inflation.
The Fed has already raised interest rates by 0.75 percentage points since March from the near-zero levels that had been in place since the start of the pandemic. That included the first half-point rate rise since May 2000, a tool top officials have indicated will be used repeatedly in quick succession until there is “clear and convincing” evidence that inflation is coming down.
Powell and other policymakers have surmised the Fed will be able to tame price pressures without causing a sharp recession, especially given the strength of the labour market and the sheer magnitude of the demand for workers.
As the Fed lifts borrowing costs by raising rates and shrinking its $9tn balance sheet, the hope is that the number of vacancies falls rather than outright job losses mount.
According to an analysis by the Financial Times, the variation in labour market tightness between states and across industries is substantial, however, potentially complicating the Fed’s efforts to pull off a “soft landing”.