What happened: Total nonfarm payroll employment added 339,000 net jobs in May. The unemployment rate edged up to 3.7% from 3.4% last month. Annual growth in average hourly earnings only slightly eased to 4.3% in May from 4.4% in April.

What it means: This latest data show the US economy is still on solid ground. A resilient labor market is supporting consumer spending. 

What Zillow Senior Economist Orphe Divounguy thinks: On one hand, a strong labor market is good for home buying activity. On the other hand, if wage growth and core inflation remain stubbornly high, mortgage rates could remain elevated, along with the potential for more Federal Reserve rate hikes.

After raising its policy rate by five percentage points in the past year, the Federal Reserve hinted at a potential pause in June, which would be a positive sign for home buyers rooting for mortgage rates to fall — so long as inflation doesn’t edge higher. Despite an uptick in the unemployment rate, today’s jobs data shows annual wage growth only slightly eased in May after an uptick in April. The yield on the 10-year Treasury, which mortgage rates often follow, increased on the news.

The good news is that those who want a job are able to find one quickly. However, the labor market is less tight and rent inflation — which tends to be most responsive to labor market tightness — is falling. Zillow’s measure of market rents fell to 4.7% annual growth in May from 5.3% in April, down from the peak of 16.9%, the record-high pace reached in February 2022. Zillow’s rent index leads the rent components of the Consumer Price Index (CPI), which comprises roughly one-third of the total index, so the expected slowdown in CPI rent growth should help bring down inflation in the coming months. Falling wage growth should also be a drag on non-housing services inflation.

June’s Consumer Price Index report will likely cause a bigger stir for bond yields and mortgage rates that tend to follow them.

Numbers to know: 

• In May, nonfarm employment increased by 339,000 jobs. May’s stronger-than-expected monthly increase comes after upward revisions totalling 93,000 jobs in March and April.
• The unemployment rate increased to 3.7% in May from 3.4% in April.
• Average hourly earnings increased 0.3% in May down from 0.5% in April. Annual growth in hourly earnings is up 4.3% year over year, down from 4.4% in April.