The American economy gained 390,000 jobs last month. We need 90,000 new jobs just to keep up with population growth, which means that net job growth clocked in at 300,000 jobs. The headline unemployment rate remained absolutely flat at 3.62%.
As usual these days, nearly all of the job gains were in the service sector. The service sector accounted for 70% of all new jobs in May, about the same as it's been all year.¹
Weekly earnings of blue-collar workers were up at an annualized rate of 6.9% over April, which is nearly a 3% rise after adjusting for the recent inflation rate.² For the year, wages were up 5.8%, which is a 2.4% decline after adjusting for annual inflation.
So how are workers doing? One thing for certain is that they mostly have jobs if they want them. In May the labor force participation rate ticked up yet again from 62.2% to 62.3%, just as it's been doing for the past year.
Wages are a more complicated story. They've been falling for a while after adjusting for inflation, which means there's no sign of a wage-price spiral. That's good for inflationary expectations but not so good for workers. In the past month or two, however, real wages have been going up. Needless to say, this is good for workers but bad for inflationary expectations.
In other words, who knows? The past couple of months might be a fluke, or it could be that employers are only now finally responding to high inflation with high wage hikes. Stay tuned.
¹This should come as no surprise since the private service sector accounts for about 70% of all American jobs.
²The annualized inflation rate from March to April was only 4.2%.
“Generally speaking, wage inflation lags consumer price inflation,” - Erica Groshen, senior economics advisor at the Cornell University School of Industrial and Labor Relations and former commissioner of the BLS. at https://www.cnbc.com/2021/11/05/how-inflation-is-impacting-your-paycheck-according-to-economists.html
Now it would be nice to know the (typical) length of the lag, but a good estimate would require many measurements over a period of steady-state economic ‘rules’, and we don’t have that. For one thing, the relative bargaining power of labor vs. management has declined considerably over the last four or five decades. Which is why a lot of us think that a wage-price spiral is unlikely today.
One of the curious things about the MSM reporting is how sensationalized they got. If you take out the 2 highest monthly rises in inflation, the rest of the past year clocks in at around 4.5%. Not great but not the end of the world.
With jobs being SO abundant, I think we may be ok, at least in the short term.
If unemployment was rising I'd be more concerned.
Inflation is a killer for the Democrats politically because it is in front of everyone's faces every day. People with jobs aren't monitoring the unemployment rate to see how the economy is doing. They're looking at the gas pump, or reading their electric/gas/oil bill, or noticing their favorite foods have skyrocketed in price at the supermarket. A lot of prices have gone up way more than the inflation rate too. Sure, those of us who are more engaged and read actual news know that you can't blame everything on the Democrats, but so-called "kitchen table issues" are often what elections turn on. Seniors, who are particularly hard-hit by inflation, are also voters. Throw some bones to them by proposing things like an increase in the social security earnings cap before taxes kick in.