Another Sunny Jobs Report, But Clouds Are Gathering

Is the almighty American jobs market weaker than it looks?

Ever since the pandemic began to fade, surging employment has helped the US economy stand out from its peers. New data on Friday confirmed that trend by showing companies added about 272,000 staff members in May, far ahead of the 180,000 that economists had expected. The bumper reading forced traders to recalibrate (again) on when they expect the Federal Reserve may lower interest rates.

Yet underneath the hood, there are signs that conditions are changing.

The bearish case goes like this: Unemployment in May increased to 4% from 3.9%, a modest rise but a harbinger of what’s ahead. A survey of households, which publishes its own measure of employment, dropped by more than 400,000 jobs in May, the largest decline this year. The participation rate—the share of the population that’s working or looking for work—fell to 62.5% from 62.7%, matching the lowest rate since early last year.