A raft of new data and studies released this week offer some clear looks at aspects of a turbulent economy that has added to political headwinds for Democrats.
The economy remains strong by almost every measure, but high gas prices and a high rate of inflation are biting into the spending power of US households.
The Federal Reserve’s moves to raise interest rates in a bid to cool the economy has also led to concerns about whether it will be able to engineer a soft landing that results in lower inflation and continued growth — and not a recession.
Here are five things to know about the economy based on the latest info.
Job growth is slowing but remains strong
Economists expected the dwindling of fiscal stimulus, high inflation, and rising interest rates to finally start taking a toll on the jobs market. Those factors may have done that last month — but not by much.
The US added 390,000 jobs in May — about 40,000 more than expected economists — while the unemployment rate stayed even at 3.6 percent, according to the monthly jobs report released Friday. The country is currently adding twice as many jobs per month as it did before the pandemic with a jobless rate just 0.1 percentage point higher than in February 2020.
While it seems counterintuitive to want slower job growth, policymakers are hopeful the US can still add enough jobs to keep the economy strong without fueling more inflation. The size of the labor force also grew slightly in May, which means businesses likely had a little less trouble filling these jobs.
“The May jobs report may have come in on the slightly warmer side for those mindful of inflationary pressures,” wrote Gordon Gray, director of fiscal policy at the American Action Forum, a right-leaning nonpartisan think tank.
“That said, payroll growth slowed a bit off of recent trends and increases in the labor force are exactly the sort of movement that can temper tight labor markets.”
Businesses are still struggling with labor shortages
While more workers are coming into the job market to fill a historically high number of open jobs, businesses are still scraping the barrel and competing with each other to stay staffed.
Businesses had roughly 11.4 million jobs open in April, down slightly from a record high of 11.9 million in March, according to job openings and labor turnover data released by the Labor Department on Wednesday. That’s close to two open jobs for each of the 6 million Americans considered to be unemployed. The number of Americans voluntarily leaving their jobs, often for better pay or career opportunities, also held close to a record high of 4.2 million.
With so many open jobs and so many workers eager to leave, businesses have avoided making layoffs for as long as possible. That’s partly why only 200,000 Americans filed new claims for jobless benefits in the last week of May, according to Labor Department data released Friday, a decline of 11,000 from the previous week and below pre-pandemic levels. Not since December 1969 have so few Americans been on unemployment insurance.
“Workers still have a considerable amount of leverage in the US labor market. The outlook for hiring remains strong as job openings remain elevated, even if their growth has slowed in recent months,” wrote Nick Bunker, economic research director at Indeed, in a Wednesday analysis.
“The companies try to retain workers they are also loath to let them go; the layoff rate was at a series low in April. Workers are having their moment in the sun, but some clouds are likely to come along and darken the outlook.”
Wage growth is cooling off
The intense demand for workers helped fuel a rapid run of wage growth since last spring, raising pay for many who had fallen behind even before the pandemic. While economists differ over how much wage growth has contributed to inflation, most agree that it needs to slow before businesses are forced to keep hiking prices just to afford to pay their staffs.
Average hourly earnings still rose 5.2 percent over the 12-month period ending in May, but fell from a 5.5 percent annual increase in March. Economists are hopeful wage growth can continue to slow in ways that help fight inflation without leaving workers behind with stagnant pay.
“Make no mistake, we want positive real wage growth! But nominal wage growth moderating even in the face of continued inflation is more evidence that we can keep labor markets tight right now without feeding inflation,” wrote Heidi Shierholz, president of the Economic Policy Institute, a left-leaning nonpartisan think tank
Supply chain snarls are still boosting prices
Shortages, shipping delays, port bottlenecks, factory shutdowns and shocks to food and energy supplies driven by the war in Ukraine have boosted prices in ways beyond the control of the federal officials responsible for fighting inflation. May brought little relief on that front.
Manufacturing activity picked up in May, according to data released Wednesday by the Institute for Supply Management, but expanded at the slowest pace since September 2020. Price growth also steamed ahead, with businesses in several industries saying they’ve been surprised by the stubbornness of supply issues.
“Price increases haven’t let up. I thought 2022 was going to be better, but it hasn’t been. Shortages (among other issues) are still disrupting the supply chain,” said an unnamed plastics and rubber products industry leader in the Institute for Supply Management report.
No end in sight to Fed rate hikes
Some investors and economists suggested this week the Federal Reserve may need to pause its planned series of interest rate hikes if the economy weakens and can’t withstand higher borrowing costs meant to curb inflation. But with the economy still strong and prices not quite close to falling, it’s full steam ahead for the bank at least through the summer.
“Today’s jobs report does not change the Fed’s trajectory for the next couple of meetings where they are likely to hike in 50 (basis point) increments. But a broad look at the labor market paints a reassuring picture relative to the excessive tightness that existed when the Fed turned hawkish around the start of the new year,” said Luke Tilley, chief economist at Wilmington Trust.
One basis point is one-hundredth of a percentage point, so 50 basis points is equal to a 0.5 percentage point hike.