Minnesota's job growth slowed in May; jobless rate hits record low of 2%

Minnesota's job growth slowed in May amid a tight labor market and higher inflation, while the state's unemployment rate fell to a historic low.

The state added 6,600 jobs last month, below the 11,700 jobs added in April, according to figures released Thursday by the Minnesota Department of Employment and Economic Development (DEED).

Meanwhile, the state's jobless rate ticked down two-tenths of a percent to 2%, the lowest since the statistic began being tracked in the mid-1970s. The previous record was 2.2% in April.

The U.S. unemployment rate held steady in May at 3.6%.

"Two percent unemployment is a good thing," DEED Commissioner Steve Grove said. "It shows that we have organizations hiring and hiring has been successful."

But the Federal Reserve has been trying to rein in inflation by raising interest rates, including a larger-than-usual hike announced this week. The central bank, along with many economists, forecast that unemployment will creep back upward in coming months as a result.

Grove said he hasn't yet seen signs of that in the state.

"I'm not hearing employers that I speak with at this moment in Minnesota telling me they're slowing down hiring," he said. "I'm hearing the opposite. I'm hearing they're trying to hire as fast as they possibly can."

Still, Grove said many employers are closely watching the economy and likely "holding their breath a little bit" as recession concerns grow. The U.S. economy contracted in the first quarter of the year, and a decline in the April-to-June period would meet the technical definition of a recession.

The number of Minnesota jobs added in May is the lowest since January, when the state added just 4,800. Since then, Minnesota had been adding more than 10,000 jobs a month.

Grove said May's job numbers would have been more on par with previous months if not for a loss of 4,300 leisure and hospitality jobs. It was the first monthly loss in that industry since September.

While DEED officials did not have a clear explanation for the drop, they said it was not among restaurants and hotels. Instead, they said, the decline was in arts and recreation, which includes golf courses and ski hills. Cold weather in April may have been a factor, they said.

Angelina Nguyen, director of DEED's labor information office, said revisions are made monthly, so the May numbers could change. For instance, the agency this month revised downward the number of jobs added in April.

The tight labor market was likely another factor in the slower job growth last month, Nguyen added.

Grove said Minnesota has the fifth-tightest labor market in the country.

Job vacancies in the state have climbed to record highs. There are more than twice as many open positions as unemployed workers in Minnesota.

At the same time, wages have been rising as employers have been working harder to attract employees — but not fast enough to keep up with the steep increase in prices. Inflation in the Twin Cities area hit a record 8.7% in May, one-tenth of a percent higher than the nation as a whole.

Average hourly earnings in Minnesota rose at a much slower rate — 3.4% — over the last year. That was also slower than the nation as a whole, which saw private sector wages increase 5.5% over the last year.

"Our message to businesses in the aggregate is that Minnesota businesses probably need to be raising wages faster than they are to attract workers," Grove said.

Minnesota has recovered about 80% of the jobs it lost in the first months of the pandemic, a slower bounce back than the rest of the nation. That's partly a result of the slower rebound of the state's labor force, which has nearly 78,000 fewer workers than it did before the pandemic. The retirements of baby boomers contributed to the gap.

The state's labor force participation rate rose one-tenth of a percent in May to 68.4%, and is about roughly halfway toward getting back to its pre-pandemic level of 70.8%.

Black and Latino Minnesotans are returning to the workforce faster than white Minnesotans, data showed. However, there continues to be a disparity in how often they're being hired. The Black unemployment rate in the state is more than twice of that of white Minnesotans.

Job gains last month were led by construction with 4,100, educational and health services with 3,200, professional and business services with 2,500, and manufacturing with 1,100. Besides the more sizable reduction in leisure and hospitality, government and retail employers also saw a small loss in jobs in May.