The main message from May's employment report is robust gains in the services industries. In May, firms added 272,000 jobs, 200,000 of which were in the services industries, and wages for non-supervisory and production workers rose 0.5%, driven by big wage gains in several service industries.
The strength of jobs and wages is linked. Wage growth in finance, professional and business services, private education and health care, and leisure posted monthly gains of 0.5% or 0.6% in May, and those sectors accounted for two-thirds of the payroll job gains. However, the strength in service sector jobs and wages presents a challenge for the Fed in managing inflation, as they are less interest-rate sensitive than other sectors. (Fed Powell's response to a question on whether monetary policy is sufficiently restrictive at the press conference following the April 30-May 1 FOMC meeting-- "So I do think the evidence shows, you know, pretty clearly that policy is restrictive and is weighing on demand, and there are a few places I would point to for that. You can start with the labor market.")
The civilian unemployment rate saw a slight increase of 0.1 percentage point to 4%. However, the household employment data has been unusually volatile over the past several months. This volatility is evident in the significant fluctuations in full-time and part-time jobs, making it challenging to discern a clear trend in the data.
Volatility in the household data is typical, but the last several months have been unusually high. It is always difficult to gauge the timing of the summer workforce's inflow. June has the biggest inflow, so it would be best to average the May and June data to gauge the underlying trend in the household data.
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