Total nonfarm payroll employment increased by 339,000 in May, an increase from upwardly revised 294,000 jobs added during April, according to the latest jobs report from U.S. Bureau of Labor Statistics. The unemployment rate for May rose by 0.3 percentage points to 3.7%.

Job gains were widespread and occurred in professional and business services (+64,000 jobs), government (+56,000), health care (+52,000), construction (+25,000), transportation and warehousing (+24,000), and social assistance (+22,000).

“What is good for the economy is not necessarily good for policymakers,” says Zonda chief economist Ali Wolf. “Today's stronger-than-expected jobs report is probably not enough to make the Fed reverse their anticipated policy ‘skip’ later this month, but it does tell officials there is more work to be done to slow the economy.”

The labor force participation rate held steady at 62.6% in May and the employment-population ratio was also little changed at 60.3% in May.

The average hourly earnings for all employees rose by 0.3% in May, according to the jobs report. Over the past 12 months, average hourly earnings have increased 4.3%. Mark Palim, deputy chief economist of Fannie Mae, says the year-over-year pace of wage growth illustrates that “wages continue to exert inflationary pressure on the economy.” According to Palim, the wage growth figures suggest the Federal Reserve’s monetary policy tightening “has still not significantly slowed the labor market.”

“Despite the increase in job growth, two data points in this report show signs of somewhat weaker labor demand. Wage growth has slowed to 4.3% over the past 12 months, and the unemployment rate ticked up to 3.7%,” says Mike Fratantoni, senior vice president and chief economist of the Mortgage Bankers Association (MBA). “The increase in unemployment was not caused by an increase in the labor force participation rate. The household survey, which is the basis for the unemployment rate, is telling a very different story than the establishment survey this month, one showing weakness in employment, the other strength.”

Palim also noted the “large divergence” between the payroll and household surveys for May. While the payroll survey indicates a robust labor market, the household survey paints a different picture of the labor market.

“Employment, as measured by the household survey, fell by 310,000 in May, corresponding to an increase in the unemployment rate of three-tenths to 3.7%,” Palim says. “While the two series do diverge periodically, such a divergence is also potentially an indicator of increased volatility and uncertainty in the labor market.”

The number of unemployed persons increased by 440,000 to 6.1 million in May. The number of individuals not in the labor force who currently want a job was 5.5 million in May, little changed from April. Such individuals are not counted as unemployed because they were not actively looking for work during the four weeks preceding the Household Survey Data collection or were unavailable to take a job.

Among those not in the labor force who wanted a job, the number of persons marginally attached to the labor force—those who wanted and were available for work and had looked for a job sometime in the prior 12 months but had not looked for work in the four weeks preceding the survey—was little changed at 1.5 million. The number of discouraged workers, subset of the marginally attached who believe there are no jobs available for them, was also little changed at 422,000.

Fratantoni says the “somewhat mixed jobs report” likely supports the projection that the Federal Reserve will hold rates steady at its upcoming June meeting but is unlikely to reduce rates “anytime soon.”

Conversely, Palim says the pace of wage growth, combined with “the hawkish shift in Federal Open Market Committee member language since the May meeting,” raises the likelihood for further rate increases in 2023.