Joe Biden's labor market may be too hot to handle

An election year jobs report showing a strong labor market, surging wages and a low unemployment rate would typically be an unqualified gift for an incumbent president.

But 2024 isn’t a typical election year, and for President Joe Biden, even the best news has its downside.

The Labor Department’s latest stunner showed that U.S. employers added 272,000 jobs in May, shattering expectations that nonfarm payrolls would reflect a softening market as other indicators point to a cooler economy. Average hourly earnings also rose by an annual pace of 4.1 percent, surpassing the rate of inflation. And while unemployment climbed to 4 percent for the first time in more than two years, it’s still below historic norms.

“Once again, payroll growth laughs at your expectations,” Martha Gimbel, a former Biden economic adviser who’s now executive director at the Yale Budget Lab, posted on X.

The turbo-charged labor market will provide Biden and his Democratic allies fodder on the campaign trail as they work to convince voters that the economy is much stronger than public polling suggests. But it also puts a major obstacle in the path of the Federal Reserve lowering interest rates for businesses and consumers.

Other recent economic gauges have hinted at slowing U.S. growth, which had given investors hope that the Fed might lower rates before the end of the year — possibly even before the election in November. The Commerce Department last week reduced its estimates for first-quarter gross domestic product growth to an annual rate of 1.3 percent, far below the pace of the fourth quarter of last year. Real disposable income growth has tapered off, and the PCE index – the Fed’s preferred inflation gauge — showed that consumer spending eased in April. The European Central Bank and Canada announced rate cuts earlier this week as global inflation has faded.

However, the May jobs report “creates the sense that the Federal Reserve may fall further behind its global central banking brethren that have pivoted to reducing restrictive rates,” Joe Brusuelas, the chief economist at RSM US LLP, wrote.

Within minutes of Friday’s job reports hitting the wires, investors lowered the probability that Fed Chair Jerome Powell and other policymakers would cut rates before fall, according to CME’s FedWatch Tool.

That could create challenges for Biden as Election Day nears. Steep borrowing costs on mortgages and credit cards have tempered how consumers feel about the economy. Consumer sentiment improved last month, according to The Conference Board’s monthly survey, but more Americans expect higher interest rates over the next year.

“The great American comeback continues, but we still have to make more progress,” Biden said in a statement on Friday.

The pro-Trump organization Maga Inc. released a statement claiming the jobs report presented a “dire picture for the American economy” as more foreign-born workers enter the labor force.