Jobs grow but wages lag in latest employment report
San José, CA – On Friday, June 5, the Bureau of Labor Statistics reported that 172,00 net new jobs were created in May. The job numbers for March and April were also revised up, making three months in a row with over 150,000 net new jobs. The official unemployment rate stayed the same as in April, at 4.3%.
Job growth was concentrated in the hotel and restaurant industry, which added 70,000 net new jobs in May, making up 40% of the total job growth. Next came local government (excluding school jobs), with 55,000 more jobs, as healthcare added 35,000 new jobs. Together these three industries added almost 90% of net new jobs.
One problem is that this trend is not expected to last. Traveling and going out to eat are not necessities, and with more and more households being caught in a vise as prices rise faster than wages, spending, and thus jobs, are likely to slow. Local governments are facing budget pressures as cuts in federal spending trickle down to state and local governments. Finally, the Medicaid cuts in the Republican “Big Beautiful Bill” of tax cuts for the rich and service cuts for the poor will speed up after the November elections, limiting the scope of future gains in healthcare jobs.
While the job numbers were strong, the number of long-term unemployed, who have been out of work for more than six months, rose by more than a third from a year ago. These workers now make up 27.5% of all the unemployed, as compared to only 20.4% a year ago.
Wage growth also slowed. In April, the year-over-year increase in wages was 3.6%, but in May, wages only increased by 3.4% over the previous year. The inflation rate measured by the Consumer Price Index is expected to rise to a 4.2% annual rate when the newest inflation numbers come out on Wednesday. This will widen the gap between prices rising faster, while wage growth is slowing down.
The strong job creation number combined with rising inflation caused bond prices to fall and their interest rates to rise on Friday. Since bonds pay a fixed interest payment, their price and the interest rate change in opposite directions. Bond interest rates have been rising since the being of the U.S.-Israeli war on Iran, which in turn drives up other interest rates, including mortgages to buy homes.
The drop in bond prices and higher interest rates also spooked the stock market, with the technology-heavy NASDAQ 100 index down 5% on Friday, led by chipmaker stocks, which fell 10%. The broader S&P fell half as much, or 2.5%.