Job Growth Blows Past Expectations, Boosting Biden But Dimming Rate-cut Hopes

The U.S. economy added 272,000 jobs in May, defying predictions that the hot labor market was finally cooling off.

The job market's surprising resilience will bolster President Joe Biden’s economic messaging at a time when most voters hold a dim view of his policies. Average hourly earnings also climbed by an annual rate of 4.1 percent, far surpassing the rate of inflation, the Labor Department said on Friday. And while unemployment climbed to 4 percent for the first time in more than two years, it’s still below historic norms.

“Once again, payroll growth laughs at your expectations,” Martha Gimbel, a former Biden economic adviser who’s now executive director at the Yale Budget Lab, posted on X.

Still, while the Biden administration will tout the report as a sign that its economic policies are working, the jobs surge will also make it harder for the Federal Reserve to justify cutting interest rates in the coming months, dashing the hopes of stock market investors. Many Fed officials have said the central bank is in no rush to slash borrowing costs as long as the labor market remains strong.

Other recent indicators have suggested an economic slowdown, however.

The Commerce Department last week lowered its estimates for first-quarter gross domestic product growth to an annual rate of 1.3 percent, less than half the pace of the fourth quarter of last year. Real disposable income growth has tapered off and the PCE index — the Fed’s preferred inflation gauge — showed that consumer spending eased in April.

Both labor costs and production levels are starting to moderate, Bloomberg reported on Thursday.