The May jobs report reminded economists that the US can still avoid a downturn.
The labor market recovery continued throughout last month. The economy added 385,000 jobs in May, slightly slower than in April, but still better than the median forecast of 325,000 jobs. The labor shortage may ease in the months to come, as the number of Americans working or actively looking for work increased.
The country has been able to recover most of the payrolls it lost during the coronaviruses crash. It took three times longer for the labor market to heal after the financial crisis.
"For the Fed, today's report is probably the best they could hope for in the early stages of the tightening cycle," Michael Feroli said.
The kind of report one would expect to see during a recession was nowhere to be found in the release. The economy is adding jobs at a faster rate than before the Pandemic. Americans are starting to return to work. The majority of companies are still hiring even though the economy is growing. Wages are rising, but not fast enough to increase inflation.
The data showed that the US continued to rebound with strength, even though worried economists had projected a weak economy.
It was difficult for the May report to strike a balance.
The Federal Reserve would have to raise interest rates more aggressively if there was a large jump in employment. Fears of a sudden slowdown and potential downturn are caused by too-small an increase.
Daniel Zhao, a senior economist at Glassdoor, said that the jobs report helps alleviate some fears about a potential recession. There isn't a lot of evidence that the economy is slowing down.
The headline figure and accompanying details landed in the goldilocks zone. The job creation slowed from February's high of 714,000 new jobs, but still showed the country to pre-pandemic levels.
The wage growth was balanced. Despite the smallest hourly earnings gain since February, average hourly earnings did not plunge into the red. The pool of potential workers is getting bigger and companies don't have to raise wages to compete.
The data shows that the economy is healing while stabilizing at a lower inflation rate. Less weight on the Fed's shoulders means a better landing. The ideal scenario in which inflation cools is described by the phrase.
The Fed's fight against inflation was a key factor in the economists' recession forecasts. The economy would be pulled into a downturn by aggressive interest rate hikes.
The Friday data shows the economy is doing well. The Fed can continue to tighten policy because of the steady job gains and slower wage growth.