May Jobs Report Reflects a "Goldilocks" Labor Market

Dr. Bernard E. Anderson
Whitney M Young, Jr. Professor Emeritus, The Wharton School, University of Pennsylvania
Senior Economic Advisor, National Urban League

With 390,000 jobs added in May, the latest Jobs Report reflects a “Goldilocks” labor market; not too hot, not too cool.   

The economy is humming along at a moderate pace driven by high consumer demand… however, if trends continue in the direction reflected in the May report, and there is little relief from supply chain bottlenecks, it’s likely that additional Fed interest rate increases will spark a mini recession in 2023.  

The U.S. has never had a situation in which inflation exceeded 4%, the unemployment rate was less than 4%, and the Federal Reserve raised interest rates without sparking a recession.

The economy is caught in the grip of high inflation, and tight labor markets as the Federal Reserve raises interest rates to bring inflation under control, and President Biden attempts to jawbone the decline in prices.   Inflation, now at a 40-year high, is generated by supply chain bottlenecks and high aggregate demand.   Inflation is most burdensome for low- and moderate-income households who spend the largest part of their monthly budget on consumer staples.

In May, the unemployment rate remained unchanged at 3.6%.  The labor force participation rate rose slightly to 62.3 %, reflecting a small increase in participation by women. Job growth was widespread across industries with employment levels rising to or near levels observed before the pandemic. And average hourly earnings rose by 10 cents to $31.95.

The Black-white employment disparity remained close to the persistent 2:1 ratio, with the Black unemployment rate at 6.2% and the white rate at 3.2%.

The Federal Reserve board raised the federal funds rate 50 basis points (.50) in April and is expected to raise the rate by that amount or more in each of the next two meetings. The goal is to reduce aggregate demand, and slow economic growth without sparking a recession. That will be very difficult given the high rate of disposable income. Two Black economists, Dr. Lisa Cook and Dr. Phillip Jefferson will join the Fed in setting monetary policy and grappling with the economic challenges.

The economy showed a V shaped recovery in 2021. But the recovery benefitted white workers more than Black and Latino workers. The Black and Latino employment/population ratio, E/P, was 5 to 6 points lower in late

2021 than in pre-Covid19; for white workers, E/P was only 3.5 points lower.  In order to reduce racial disparities in employment and income, it’s necessary to increase funding for post-secondary education and workforce development.  That will help unlock job opportunities for Black and Latino workers in higher skilled, higher paid, less cyclical occupations. Increase funding for quality childcare for parents who take advantage of workforce training also will help eliminate racial employment disparities