The Federal Reserve already had some tough decisions to make at its meeting later this month and the May jobs report is not making things any easier. Job growth surprised economists yet again in May, with total nonfarm payroll employment rising by 339,000 jobs compared to April, according to data released Friday by the Bureau of Labor Statistics.
This increase is in line with the average monthly gain of 341,000 jobs over the past 12 months.
However, as more people entered the workforce in May, the unemployment rate ticked up to 3.7%, compared to 3.4% in April, with the total number of unemployed persons rising to 6.1 million. The unemployment rate has remained between 3.4% and 3.7% since March 2022.
“Even though the pace of layoffs has picked up, many businesses, particularly in transportation, healthcare, and hospitality, continue to have strong demand for workers,” Mike Fratantoni, the Mortgage Bankers Association’s chief economist, said in a statement. “Data earlier this week showed that job openings in April increased to over 10 million postings once again.”
The lion’s share of the job growth in April came from gains in the professional and business services sector (up 64,000 jobs), the leisure and hospitality sector (up 48,000 jobs), the government sector (up 56,000 jobs), and the health care sector (up 52,000 jobs).
The construction sector also saw job gains in May, adding 25,000 positions, thanks to a large uptick in heavy and civil engineering construction, which added 10,700 jobs. Residential building construction added 2,400 jobs during the month. Over the past 12 months, the construction sector has added an average of 17,000 jobs per month.
“The Federal Reserve’s monetary tightening has negatively impacted the housing industry, a very interest-rate sensitive sector, but the construction labor market has not experienced a sharp decline,” Ksenia Potapov, a First American economist, said in a statement. “The continued strength is partially due to the years-long struggle that builders have had attracting and retaining skilled construction workers, making them less likely to part with skilled workers, even in a weaker housing market.”
The real estate and rental and leasing sector also added jobs in May, with employment rising by 2,800 jobs. The gains were split fairly evenly, with real estate adding 1,200 and rental and leasing adding 1,500 jobs.
In February 2020, a combined 300,000 were employed in “real estate credit” and as mortgage and non-mortgage loan brokers. As of April 2023, there were roughly 342,100 people in those jobs, up slightly from the 340,800 in March, thanks to a slight in the number of mortgage and non-mortgage loan brokers employed. With the housing market remaining at a much cooler level than last year, there is still the potential for further cuts in these sectors.
But while the number of employed persons rose in May, wage growth held steady for the month prior at a 4.3% year-over-year increase, further complicating things for the Fed.
The Wall Street Journal, citing sources, reported Thursday that the Fed is increasingly likey to pause rate hikes at its June meeting. But that was before the jobs report came out.
“The Federal Reserve may be hoping for a soft landing, but its main priority is bringing down inflation. If the Fed perceives the economy to be too hot, it’s likely to push on the monetary tightening pedal,” Potapov said. “The Fed remains data dependent and April’s FOMC statement did not explicitly state—only hinted—that the Fed would pause rate hikes. The above-expectation job gains in May increases the likelihood that more rate hikes are ahead.”
Industry experts predict that this uncertainty will lead to mortgage rates remaining around their current level.
“For now, mortgage rates, which have already hit an eight-month high last month, will likely stay elevated and continue to constrain housing market activity this summer,” Lisa Sturtevant, the chief economist at Bright MLS, said in a statement. “Home prices will continue to soften though prospective buyers should not expect to see sellers slashing prices, as the inventory of homes for sale remains tight.”