The May jobs report set to be released Friday morning will likely show employment growth slowed last month from the torrid pace the U.S. has seen since the start of the recovery from the coronavirus recession.
But while a slowdown in jobs gains doesn’t often signal good news for a president suffering poor approval ratings amid high inflation, or his party, it may not be that bad for President Biden.
Economists expect the Labor Department’s jobs report to show a gain of 350,000 jobs in May and a slight decline in the unemployment rate to 3.5 percent, according to consensus projections. If those forecasts hold up, May would be the first month of job gains below 400,000 in more than a year and the lowest monthly employment increase since April 2021.
“The big picture story here is that most evidence suggests that payroll growth is slowing, though it remains strong by normal cyclical standards,” wrote Ian Shepherdson, chief economist at Pantheon Economics, in a Thursday preview. He’s expecting a gain of 250,000 jobs.
“In any event, the 250K we expect for May payrolls is not a disaster, given that the trend before Covid was about 230K per month. But it does represent a clear slowdown from the recent trend.”
Republicans are eager to replace Democratic majorities in the upcoming midterm elections, and will likely jump on the slowdown as proof of Biden’s poor grasp on the economy.
The U.S. has gained more than 8.5 million jobs since Biden took office, but high inflation has strained household budgets and driven deep dissatisfaction with the president’s economic agenda.
But a slight decline in job growth may not be bad news for Biden, who has laid out a plan to combat inflation, if it means the U.S. economy is slowing to a more sustainable pace.
A combination of $6 trillion in fiscal stimulus, ultra-low Federal Reserve interest rates, the speedy development of COVID-19 vaccines and resilient consumer spending helped power a rapid recovery from the pandemic-driven recession.
But businesses are still struggling to keep up with intense demand for goods and services as they try to hire from a smaller workforce and navigate global supply shocks.
While economists differ over how much of inflation is driven by the tight labor market, they are generally concerned with the imbalance between the number of open jobs and the amount of workers to fill them.
“We have fewer people producing goods and services and more money trying to consume goods and services. So, of course the prices of those goods and services are going to go up,” said Julia Pollak, labor economist at ZipRecruiter, in a Thursday interview.
There were roughly two open jobs for each unemployed American in April as businesses scrambled to fill near-record numbers of vacant jobs, according to Labor Department data released Wednesday. With fewer potential employees to hire, businesses have boosted wages and prices to keep up with intense demand for their products — and even employees.
Economists are hopeful that even with a decline in employment growth, the jobs report will show the labor market coming into balance on its own as the effects of stimulus wear off and more Americans are driven back to the workforce. In other words, fewer jobs added in May is an acceptable sacrifice for higher rates of labor force participation.
“Having more workers come in and more production could actually help reduce inflation in the long run,” Pollak said.
Higher labor force participation would give businesses more options to fill open jobs without continuously raising wages. It would also help the Federal Reserve avoid drastic measures to curb inflation if demand for workers comes back in line with supply.
“There’s been many times in history when we have raised unemployment by sort of killing demand and inflation, for all kinds of reasons, has remained high or increased anyway. That is the situation we most want to avoid,” Pollak said.
The May jobs report will follow a week of new data that showed falling unemployment claims and rising U.S. industrial production — two signs of resilience for an economy facing higher prices and interest rates.
The Fed is aiming to slow the economy enough to reduce pressure on inflation without derailing an economy that is strong by almost every other measure. The bank has already raised its baseline interest range by 0.75 percentage points this year and is expected to hike it another 1 percentage point before the end of the summer.
But if labor shortages persist, the Fed may need to drop the hammer on resilient American consumers with interest rates meant to restrict the economy’s growth. The persistence of rapid job gains without more workers coming in to fill them could mean deeper job losses down the road if the Fed must spike rates before prices spiral out of control.
Ahead of a meeting with Fed Chairman Jerome Powell on Tuesday, Biden pledged not to push the bank away from doing whatever is necessary to fight inflation.
Though the Fed is independent from Biden’s control, the president has sought to give the bank helpful, if tacit, political support to squeeze the economy while setting himself up to avoid blame if it goes awry.
“Between the war in Ukraine and the Federal Reserve tightening a lot, I’ve been expecting to see a slowdown in jobs and we really haven’t seen it yet,” said Matthew Darling, an employment policy fellow at the Niskanen Center, a nonpartisan think tank.
“I think that can’t last forever.”