What the May Jobs Report Means for Small BusinessesEmployers added 272,000 jobs in May, trumping last month's report and economists' expectations.


Despite signs of a cooling economy, businesses are still adding a substantial number of jobs. According to the latest report from the U.S. Bureau of Labor Statistics, non-farm payrolls increased by 272,000 in May. This marks an improvement from April's revised figure of 165,000 jobs and exceeds the 190,000 jobs predicted by some economists. It also surpasses the 12-month average monthly gain of 232,000 jobs. Leading this increase were the healthcare, government, and leisure and hospitality sectors.

"All the sectors that suffered significantly during the pandemic are showing much better performance now," says Julia Pollak, chief economist at the job posting site ZipRecruiter. However, Pollak cautions that "one month is not a trend," and other recent data indicate a cooling labor market. The Job Openings and Labor Turnover Survey (JOLTS) from earlier this week revealed that job openings fell to a three-year low in April. EY senior economist Lydia Boussour also noted via email that "job creation is poised to slow" in the future due to softer consumer demand, reduced pricing power, and lower profitability, which are making companies more pragmatic about hiring and wage increases.

This pullback is already visible to some extent: The share of small-business owners planning to create new jobs within the next three months fell to its lowest level since May 2020 at a net 11 percent in March, though it increased to a net 15 percent by May, according to the National Federation of Independent Business (NFIB). 

"It's not the same competitive frenzy that it was two years ago," says Justin Bloesch, assistant professor at the Cornell University Industrial and Labor Relations School. Nonetheless, finding talent remains challenging. "It's not like talent is sitting around unemployed," Bloesch adds. The unemployment rate remained relatively low, at 4 percent for the first time in more than two years, and the quits rate in the JOLTS report stayed steady at 2.2 percent for the sixth consecutive month in April. 

To attract good talent, companies will likely need to headhunt competitors, according to Bloesch, and to do that, they must offer competitive wages. Although wage growth is gradually declining, it still accelerated by 0.4 percent month-over-month in May and 4.1 percent year-over-year, up from April's figures.

"It's expensive for businesses to offer the types of wages needed to stay competitive in this market," says Yelena Maleyev, an economist at KPMG. The latest Small Business Optimism Index from the NFIB showed "historically high levels of owners raising compensation to retain and attract employees," according to NFIB chief economist Bill Dunkelberg.

Besides the cost of labor, business owners are also dealing with interest rates that have stayed between 5.25 and 5.5 percent since July. While the Federal Reserve is awaiting further data, Boussour believes that the cooling labor market indicates a shift towards a less inflationary balance.  

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