Job Growth in a Tight Labor Market

The graphics below help summarize what’s happening in today’s labor market.

Nonfarm payrolls increased by 390,000 in May, according to the U.S. Bureau of Labor Statistics (BLS). The unemployment rate remained at 3.6% in May.

Figure 1 is a 3-month average of the monthly change in nonfarm payrolls. The average helps smooth away statistical anomalies that may creep into the monthly data.

What do we see? Payroll growth is vigorous but is moderating. In May, the 3-month average dipped below 500,000 for the first time since June 2021.

Figure 2 illustrates the extremely high number of job openings. Notably, openings are far above the prior record set in the economic expansion during the 2010s.

Figure 3 highlights the large number of people who remain out of the labor force. As of May 2022, there are over 4 million people who are still at home and aren’t working versus the period prior to the onset of the pandemic.

Economic growth = job growth

Economic growth occurs as businesses increase sales amid rising demand.

When sales rise, companies usually need new employees to handle increased business, or they may decide to expand, which leads to hiring, too. In turn, hiring leads to job growth.

But not everyone who left the labor force during the early days of the pandemic has returned, leaving some employers scrambling for workers; hence, the record number of openings. While moderation in job growth is occurring, the actual level remains strong on a historical basis.