June 2022 National Economic Outlook

Executive Summary

Employment, as measured by a survey of firms by the Bureau of Labor Statistics, rose by a solid 390,000 in May from April, with average job gains of 408,000 over the past three months. Private-sector employment rose by 333,000 in May, while government employment rose by 57,000. Employment in May was about 800,000, or 0.5%, below its pre-pandemic level. Employment fell by 22 million (14%) in March and April 2020. Given the depth of the downturn, the recovery in the labor market has been extraordinary. The unemployment rate was 3.6% for a third straight month in May. 

The unemployment rate soared from 3.5% in February 2020 to 14.7% in April 2020 with the pandemic, and then steadily fell through the rest of 2020 and all of 2021. It is now just barely above the pre-pandemic rate but has been flat for three straight months. The labor force participation rate—the share of adults working or looking for work—ticked up by 0.1 percentage point to 62.3%. The labor force participation rate has been between 62.2% and 62.4% throughout 2022, well below the 63%+ rate before the pandemic.

The consumer price index came in higher than expected in May. The overall CPI increased 1.0% in May from April, with a 3.9% increase in energy prices and a 1.2% increase in food prices. The core CPI, excluding food and energy prices, increased 0.6% for a second straight month. 

On a year-over-year basis overall CPI inflation was 8.5% in May, up from 8.2% in April but down from 8.6% in March, while core CPI inflation was 6.0% in May, down from 6.1% in April and 6.4% in both February and March. Although CPI inflation has slowed slightly on a year-ago basis in recent months, it remains near the strongest pace in four decades.

Retail sales fell 0.3% in May from April, but the results were distorted by big swings in key components. Sales at gas stations rose 4.0% due to a huge jump in prices, while sales of autos and parts fell 3.5%. Sales excluding autos and parts were up 0.5% over the month, while sales excluding autos and gasoline were up 0.1%, below the pace of inflation. 

Control sales—retail sales excluding food service, autos, gasoline, and building materials, and which go into consumer goods spending in GDP—fell 0.1% in May from April. Household spending growth is slowing in mid-year as high inflation, in particular high gasoline prices, and higher interest rates weigh on consumers. Sales growth in May was anemic after accounting for much higher gasoline prices and was below the rate of inflation. There were also downward revisions to sales in April.

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