US economy added 339,000 jobs in May defying expectations of a slowdown

US jobs growth was almost twice as strong as forecast in May, in an unexpected sign of labour market resilience ahead of a decision by central bank officials over whether to hold interest rates steady or push ahead with another increase.

The US economy added 339,000 new non-farm jobs last month, according to figures published by the Bureau of Labor Statistics on Friday, compared with expectations of around 195,000. Figures for the previous two months were also revised upwards.

However, the unemployment rate rose slightly more than expected, from 3.4 per cent to 3.7 per cent, while month-on-month wage growth cooled to 0.3 per cent. Wage growth edged down but remained high at 4.3 per cent on an annual basis, highlighting the tightness in the labour market.

Employment and wage growth are key drivers of inflation, particularly in the services sector, and economists and officials have been watching for signs of a slowdown in these measures as an indicator that price pressures are also on course to slow.

Economists traditionally look for wage growth to fall to about 3.5 per cent for the Fed to hit its 2 per cent inflation target.

The unexpectedly strong data could challenge expectations that the central bank will pause its cycle of interest rate increases at its next meeting in mid-June after 10 consecutive rate rises.

Several senior central bank officials had suggested this week they could pause tightening for a month to give themselves more time to assess the effect of their actions so far.

Philip Jefferson, president Joe Biden’s pick to become the next Fed vice-chair, on Wednesday said “skipping a rate hike at a coming meeting would allow the committee to see more data before making decisions about the extent of additional policy firming”, but added a pause would not stop the central bank from resuming increases in July.

Philadelphia Fed president Patrick Harker also suggested skipping a rate rise for one meeting.

However, Friday’s data is the latest in a series of figures that have reinforced the challenges of bringing inflation back towards its target level, following elevated job openings and stubbornly high core inflation figures. Cleveland Fed president Loretta Mester told the Financial Times earlier this week that there was “no compelling reason to pause”.

Futures markets on Thursday afternoon were pricing in a 25 per cent chance that rates increase this month, compared with a peak of 70 per cent earlier in the week. However, investors still see a decent likelihood of another rate rise by the Fed’s following meeting in July.