The nation’s employers stepped up their hiring in May, adding a robust 339,000 jobs, well above expectations and evidence of strength in an economy that the Federal Reserve is desperately trying to cool. 

Friday’s report from the government showed that the unemployment rate rose to 3.7%, from a five-decade low of 3.4% in April. 

The stronger hiring demonstrates the job market’s resilience after more than a year of rapid interest rate increases by the Fed. Many industries, from construction to restaurants to health care, are still adding jobs to keep up with consumer demand and restore their workforces to pre-pandemic levels. 

Having imposed 10 straight rate hikes since March 2022, the Federal Reserve is widely expected to skip a rate increase when it meets later this month, though it may resume its hikes after that. Chair Jerome Powell and other Fed officials have made clear that they regard strong hiring as likely to keep inflation persistently high because employers tend to sharply raise pay in a tight job market. Many of these companies then pass on their higher wage costs to customers in the form of higher prices. 

The May jobs report adds to other recent evidence that the economy is still managing to chug ahead despite long-standing predictions that a recession was near. Consumers ramped up their spending in April, even after adjusting for inflation, and sales of new homes rose despite higher mortgage rates. 

Some cracks in the economy’s foundations, though, have begun to emerge. Home sales have tumbled. A measure of factory activity indicated that it has contracted for seven straight months. 

And consumers are showing signs of straining to keep up with higher prices. The proportion of Americans who are struggling to stay current on their credit card and auto loan debt rose in the first three months of this year, according to the Federal Reserve Bank of New York. 

Fed officials are expected to forgo a rate increase at their June 13-14 meeting to allow time to assess how their previous rate hikes have affected the inflation pressures underlying the economy. Higher rates typically take time to affect growth and hiring. The Fed wants to avoid raising its key rate to the point where it would slow borrowing and spending so much as to cause a deep recession. 

The U.S. economy as a whole has been gradually weakening. It grew at a lackluster 1.3% annual rate from January through March, after 2.6% annual growth from October through December and 3.2% from July through September. 

The Federal Reserve’s so-called Beige Book, a collection of anecdotal reports mostly from businesses across the country, reported this week that the pace of hiring gains in April and May had “cooled some” compared with previous reports. Many companies reported that they were fully staffed. 

At the same time, despite some high-profile job cuts by financial and high-technology companies, the pace of layoffs remains unusually low. The number of people seeking first-time unemployment benefits, a proxy for layoffs, barely rose from a low level last week.

Many employers are still engaged in so-called “catch-up hiring,” particularly in such sectors as restaurants, hotels and entertainment venues. Even as customer demand in these industries has spiked, the number of employed workers remains below pre-pandemic levels.

Consumers, who drive roughly two-thirds of economic activity, are still mostly spending at a solid pace, despite higher prices and borrowing rates. Their spending jumped 0.8% in April, the fastest monthly pace since January, as Americans flocked to airports, restaurants and concert halls, among other places. 
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