Friday, September 22, 2023

US Economy, Labor Market Are Alive and Well

  • The May jobs report wasn’t too hot or too cold. It was just right for dispelling recession fears.
  • The US added 390,000 jobs in May, reflecting the ongoing recovery at a slower rate.
  • The report was “probably about the best” the Fed could hope for as it fights inflation, JPMorgan said.

After weeks of economists debating what a looming recession will look like[1], the May jobs report offered a simple reminder: the US can still dodge a downturn.

The latest employment data[2], published Friday, showed the labor market recovery continuing throughout last month. The economy added 390,000 nonfarm payrolls, slowing slightly from April’s pace but easily exceeding the median forecast of 325,000 new jobs. The number of Americans working or actively looking for workedged higher, signaling the labor shortage may ease in the months ahead.

The country has now recouped more than 96% of the payrolls it lost during the coronavirus crash, and a full recovery will likely arrive in July[3]. By comparison, it took three times as long for the labor market to heal after the 2008 financial crisis.

“For the Fed, today’s report is probably about the best they could hope for in the early innings of the tightening cycle,” Michael Feroli, chief US economist at JPMorgan, said.

The release looked nothing like the kind of report one would expect to see during a recession[4] . The economy is still adding jobs at roughly twice the speed as seen before the pandemic. Americans are gradually returning to the workforce. Companies are, for the most part[5], still hiring in anticipation of steady economic growth. Wages are climbing, but not so quickly as to boost inflation.

The data didn’t just diverge from worried economists’ projections of a weakening economy; it showed the US continuing to rebound with extraordinary strength.

Not too hot, and not too cold just right to avoid a downturn for now

The May report had to strike a difficult balance for it to quell recession fears.

Too-large a jump in employment would raise concerns that growth is still too strong, and that the Federal Reserve[6] would have to more aggressively raise interest ratesto slow the economy. Too-small an uptick would stoke fears of a sudden slowdown and potential downturn.

“Today’s jobs report helps assuage some fears about a potential recession,” Daniel Zhao, a senior economist at Glassdoor, told Insider’s Juliana Kaplan[7]. “There doesn’t really seem to be strong economic evidence, even outside of the jobs report, that the economy is slowing that dramatically.”

The headline figure and accompanying details landed right in the jobs-data Goldilocks Zone: not too hot, and not too cold. May job creation continued the slowdownfrom February’s high of 714,000 new jobs, but still showed the country charging to pre-pandemic employment levels.

Wage growth was similarly balanced. Average hourly earnings rose 0.3% through the month, marking the smallest gain since February but avoiding a worrying dive into negative territory. The small improvement in participation also suggested that the pool of potential workers is getting bigger and companies won’t have to keep raising wages to compete.

Put simply, the data shows the economy continuing to heal while settling into an environment of lower inflation. That leaves less weight on the Fed’s shoulders to engineer a perfect “soft landing.” The phrase describes an ideal scenario in which inflation cools while unemployment remains low.

Bearish economists largely hinged their recession forecasts on the Fed overdoing its fight against inflation. Aggressive interest rate hikes would slam the brakes on spending and growth and pull the economy into a downturn.

The Friday data, however, signals the economy is doing just fine with higher rates. The steady job gains tell the Fed it can continue to tighten policy without fears of a hiring pullback, and slower wage growth indicate the central bank may not need to be very aggressive to bring inflation to heel.


  1. ^ what a looming recession will look like (
  2. ^ latest employment data (
  3. ^ a full recovery will likely arrive in July (
  4. ^ recession (
  5. ^ for the most part (
  6. ^ Federal Reserve (
  7. ^ told Insider’s Juliana Kaplan (


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