Red hot: Economy beat expectations with 172,000 jobs in May despite Iran energy crunch
May’s jobs report showed the U.S. economy added 172,000 payroll positions, with the unemployment rate holding steady at 4.3%. Job growth came in stronger than forecasts (85,000) and prior months were revised upward, suggesting businesses largely shrugged off disruptions tied to the war with Iran, including energy-supply shocks and halted tanker traffic through the Strait of Hormuz.
The conflict also pushed energy prices higher, lifting inflation expectations into May and complicating the Federal Reserve’s options. Market pricing now suggests investors see little chance of a rate cut this year and a greater possibility of further hikes, despite trump’s preference for lower rates.
At the same time, other indicators point to underlying resilience: retail sales and industrial production remained strong even as consumer sentiment surveys stayed weak. Politically, Republicans are leaning on the jobs and tax-cut boost to improve their midterm prospects, while Democrats are focusing on the rising cost of living.
The economy added 172,000 new payroll jobs in May, the Bureau of Labor Statistics reported Friday, as businesses shrugged off the energy supply shock from the war with Iran.
The unemployment rate remained at 4.3%.
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Forecasters had expected payroll job growth to slow to 85,000.
Instead, it accelerated, and previous months’ job gains were revised up.
Friday’s report is likely to provide a shot in the arm for President Donald Trump, who has been weighed down by historically low consumer sentiment.
The conflict with Iran and the halt of oil tankers through the Strait of Hormuz darkened the economic picture over the course of May.
The run-up in energy prices from the supply chain disruptions pushed up inflation heading into the month. The price of a gallon of regular gas, for instance, rose from around $3 in February to above $4 by the end of May.
The surge in inflation has complicated matters for the Federal Reserve. Investors now see little chance for a cut in the central bank’s interest rate target this year. Market odds now see a greater likelihood that the Fed will instead raise rates this year, to tamp down inflation, even though the newly installed chairman, Kevin Warsh, was appointed by Trump, who has called repeatedly over the past year for lower rates.
Yet other economic indicators suggest underlying strength.
Retail sales have been strong despite the low consumer sentiment recorded in surveys. Industrial production, too, has been robust through the spring.
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Republicans are hoping that the boost from the tax-cut bill signed by Trump last July will help allay voter fears about the economy and buoy the party in the midterm elections. Democrats, meanwhile, are hammering Trump and the GOP on the rising cost of living — the same factor that doomed President Joe Biden in his bid for reelection.
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