Stocks tumble after the latest jobs numbers, ending the week lower.

A co-working space in San Francisco. Employers have responded to hot competition in the job market by raising pay.Credit…Jim Wilson/The New York Times

Job growth slowed a bit in May. In normal times, that might be a troubling sign, prompting fears that the economy is losing steam or, worse, headed into a recession.

But these are not normal times. With nearly twice as many open jobs as available workers and inflation running at its fastest pace in four decades, many economists and policymakers say a slowdown is just what the economy needs right now.

But a cooling economy carries its own risks. Despite inflation, the recovery from the pandemic recession has been among the strongest on record, with unemployment falling rapidly and incomes rebounding fastest for those at the bottom. If the recovery slows too much, it could undo much of that progress.

That delicate balance makes interpreting monthly jobs reports trickier than usual because the number that usually gets the most attention — the 390,000 jobs added in May — doesn’t reveal whether the mismatch between supply and demand is easing.

To answer that question, many economists are watching the labor force participation rate, the share of the population either working or looking for work. That figure ticked up in May to 62.3 percent, as the labor force grew by 330,000 people. That, in conjunction with slightly slower job growth, is an encouraging sign that the labor market is coming back into balance as demand cools and supply improves.

Economists are also closely watching wage growth, which many say needs to slow in order to bring inflation under control. Average hourly earnings rose 0.3 percent in May, and are up 5.2 percent over the past year. The pace of wage growth has slowed a bit in recent months, although it remains simultaneously slower than inflation and faster than many economists consider sustainable.

“That’s something that we’re used to saying pretty unequivocally is good, but in this case it just raises the risk that the economy is overheating further,” said Adam Ozimek, chief economist of the Economic Innovation Group, a Washington research organization.

For workers, a cooling labor market could feel like a step backward, at least in the short term. Wage growth will be slower. Job opportunities will be fewer. Workers will have less leverage to demand flexible schedules or other perks.

But the Biden administration argues that a cooling economy is a necessary transition that will be better for workers in the longer run.

“Where we are going to is a period of more stable growth, more resilient growth, that should look different than that historically fast recovery,” Brian Deese, a top economic adviser to Mr. Biden, said in an interview. The administration’s goal, he added, is a more sustainable recovery “that generates more economic opportunities and more economic security for middle-class families than the prepandemic economy did.”


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