U.S. Economy Added 390,000 Jobs in May, Unemployment Steady at 3.6%

The U.S. economy added 390,000 jobs in May and the unemployment rate held steady at 3.6 percent, the Department of Labor said Friday.

Economists had expected the economy to add 323,000 jobs and the unemployment rate to tick down to 3.5 percent from 3.6 percent. The range of forecasts by economists surveyed by Econoday was between a gain of 250,000 to 370,000.

The economy rebounded from the pandemic much faster than expected. The labor market, in particular, quickly recovered much of the damage done by 2020’s lockdowns and social distancing, with the unemployment rate dropping much faster than expected.  Demand for goods soared as American incomes were pumped up with stimulus money from various government programs and social distancing rules left people bereft of many of the leisure services activities–sports, concerts, travel, movies–that typically would have drained bank accounts.

The supply side of the economy could not keep up with the shift into spending on goods, especially with many exporting countries also struggling with the pandemic. China’s ports have suffered a series of closures under the country’s zero-tolerance policy for Covid. Various stages of the global supply chain to build semiconductors have also broken down, creating shortages that forced makers of everything from cars, to appliances, to phones to slow production.

Despite the signs that the demand side of the economy had recovered and the supply side was straining, the Federal Reserve continued to keep rates low, fearful of repeating past mistakes of withdrawing economic support too early. Similarly, the Biden Administration and Democrats led by House Speaker Nancy Pelosi (D-CA) and Senate Majority Leader Chuck Schumer (D-NY) pushed through an enormous spending program called the American Rescue Plan.

The result: an explosion of inflation that Fed policymakers and Biden administration initially insisted would be transitory. But as the supply chains remained stressed and prices continued to climb last year, Fed officials abandoned the word transitory and scrambled to pivot to an inflation-fighting stance.

At the end of April, there were 11.4 million job vacancies, the government reported this week.