As jobs market nears total recovery, economists pray US won’t ‘blow past full employment’

Nancy Sarnoff

Updated Sun, Jun 5, 2022, 6:00 AM 4 min read

The white-hot U.S. job market cooled to merely red hot last month, a mixed blessing for workers worried about runaway inflation and the possibility of a recession.

Employers added 390,000 jobs in May — down from the 428,000 added in April — and the unemployment rate remained stable, according to the latest report Bureau of Labor Statistics jobs report.

While nearly all the private-sector jobs lost during the pandemic have returned, the pace of employment growth is noticeably slowing.

The economy is starting to shift into a period of stable, steady growth, President Joe Biden said in an address Friday after the announcement.

“We should expect to see more moderation,” Biden said. “We aren’t likely to see the kind of blockbuster job reports month after month like we have over this past year. But that's a good thing. That’s a sign of a healthy economy.”

A (near) full recovery

The U.S. employment market has almost fully healed from the staggering losses suffered during the worst of the pandemic.

“We are on the verge of a complete private-sector recovery, with 99% of private sector jobs lost in the pandemic now recovered,” Julia Pollak, chief economist at ZipRecruiter, tweeted Friday.

The unemployment rate in May held steady for the third straight month at 3.6%. The number of Americans out of work was about 6 million — similar to pre-COVID levels, the Labor Department reports.

Still, more moderation is needed to avoid a downturn.

Mark Zandi, chief economist with Moody’s Analytics, says job growth needs to continue slowing — ideally to around 150,000 jobs this summer.

“This will ensure the economy doesn’t blow past full employment, fan wage growth and exacerbate the high inflation,” Zandi tweeted.

In economic circles, "full employment" often refers to an ideal balance of jobs and workers, where unemployment is as low as possible without inflation accelerating out of control.

When an economy goes past full employment, companies need to fight extremely hard over the limited pool of available workers. They keep raising wages but also keep raising their prices to compensate for the expense.

Earnings are still rising

For now, workers continue to demand higher wages. Average hourly wages last month were up by 10 cents — or 0.3% — to $31.95, the Labor Department says.

Wages are up 5.2% over the past 12 months, down from 5.5% last month.

The slowdown, while not great news for workers whose earnings haven't kept up with inflation, is a sign that higher prices may start to moderate as the Federal Reserve tightens monetary policy, says Daniel Zhao, senior economist with Glassdoor.

“Despite concerns of a slowdown, this doesn’t look like a labor market about to tip into recession,” Zhao writes.

With prices still surging on everything from gas to groceries, thanks in large part to supply chain disruptions from the war in Ukraine, the Fed is scrambling to use its tools to slow the economy while keeping it from flailing into a recession.

The central bank has raised its benchmark interest rate twice so far this year, with more rate hikes on the way.

These industries are still on a hiring spree

May’s job gains continued to be concentrated in three main sectors.

Hotels, restaurants and bars

Leisure and hospitality jobs were up by 84,000 in May. Hiring picked up in restaurants, bars and hotels as more consumers dined out and took trips.

Employment in this sector, however, is still down compared with pre-pandemic levels.

Accounting, computer systems design and research and development

Employment in professional and business services rose by 75,000 in May — ending up 821,000 jobs higher than the tally before the pandemic in February 2020.

“This is one of the few sectors that has not only recovered the ground lost to the recession but skyrocketed to a whole new high,” writes Diane Swonk, chief economist of Grant Thornton.

Warehousing and storage and truck and air transportation

Transportation and warehousing employers added 47,000 jobs last month. Employment in the sector is also above its pre-COVID level.

Where jobs are slowing

Retail employment — while still above February 2022 levels — retreated in May, the Labor Department reports.

Job losses during the month occurred in general merchandise stores, clothing and accessories stores, food and beverage outlets and building material and garden supply stores.

“Big-box discounters, which found themselves overstaffed as consumers pivoted from spending on goods to services, shed the most jobs,” Swonk says. “They had held onto holiday hires during the omicron wave.”