What the May jobs numbers tell us about recession fears

·4 min read
President Biden.
President Biden. Illustrated | Getty Images, iStock

The U.S. added 390,000 jobs in May, the Labor Department announced in its latest monthly report on Friday. Here's what the experts had to say about the numbers:

Overall, this is good

Economists seemed to respond optimistically to the May report, despite unemployment having held steady at a still-positive 3.6 percent instead of dropping to the estimated 3.5. And though average hourly earnings jumped 5.2 percent in the year through May (good news for workers, but tough news for policy), wage growth slowed slightly from April in what some are taking as a sign of possible cooling and moderation.

"Despite the slight cooldown, the tight labor market is clearly sticking around and is shrugging off fears of a downturn," Daniel Zhao, Glassdoor's senior economist, told CNBC. "We continue to see signs of a healthy and competitive job market, with no signs of stepping on the brakes yet."

While total employment currently remains below pre-pandemic levels, "[w]e're in the homestretch here," Appcast labor economist Andrew Flowers told The New York Times: "We could be about two months from being at the employment level that we had in pre-pandemic times in February 2020."

Meanwhile, the labor force participation rate — or, the percentage of the population that is employed or actively looking for work — grew to 62.3 percent in May, which, when combined with the slightly slower job growth, is another "encouraging sign that the labor market is coming back into balance as demand cools and supply improves," the Times writes. As the Economic Policy Institute's Heidi Shierholz said, despite falling below the "blistering average pace" of per-month job growth over the last year, the May jobs total is still "extremely strong."

The Times' Ben Casselman offered up a similar take:

Hitting back at recession doomsayers

If you ask economist Justin Wolfers, Friday's report should actually allay any lingering fears of a recession — there's "simply no sign" of one in the data, he said. Rather, the economy is "motoring along. Goldilocks is more concerned it's running too hot rather than too cold."

As positives, Wolfers highlighted the fact that "people keep returning to work," and that nominal wage growth is "slowing in a way that should calm the wage-price spiralizers a bit."

And to further cement his point, the Times contributor even took a jab at what he feels is a disparate narrative surrounding the state of the economy and the media's interpretation of it: "I can't remember seeing a greater disjunction between media commentary on the economy (every second story seems to be about risk! of! recession!) and economic reality."

A new challenge for Biden

Though a cooling economy is helpful at the moment, it's not without its risks or challenges.

For one, President Biden must now convince an inflation-weary public that a slowing economy is actually a good thing, Politico notes. Thanks to rising prices, Biden hasn't gotten much credit for the nation's speedy economic recovery, and a slowdown will likely be even harder to explain and convey to voters. And it's not like his messaging on the matter would be wrong, economists have said: "Slower job and wage growth could ease rapid inflation and take pressure off the Federal Reserve to jack up interest rates even faster," Politico writes.

Still, it's a difficult needle to thread. If things slow down too much, it risks rendering moot all of the progress made thus far.

"There is no question that you'd like to see the jobs numbers dropping a little so the Fed isn't forced into bigger rate hikes," MetLife Investment Management's Drew Matus told Politico. "But there is also a bit of 'careful what you wish for' about it. Because you don't want it to slow too much or in the wrong areas."

Even so, the Fed is "right to be rapidly moving interest rates to neutral," posited economist Jason Furman. "We might get lucky and have inflation come back down on its own, their actions are more about locking that in than making it happen."

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