U.S. creates 559,000 jobs in May and unemployment falls to 5.8%, but it’s really just a so-so report

The numbers: The U.S. added a modest 559,000 new jobs in May even though most companies are eager to hire, signaling that labor and supply shortages are holding back an economic recovery.

The increase in employment in May fell short of Wall Street expectations. Economists surveyed by Dow Jones and The Wall Street Journal had forecast 671,000 new jobs.

The unemployment rate, meanwhile, slipped in May to a pandemic low of 5.8% from 6.1%. Yet the official rate almost certainly understates the true level of unemployment by 2 to 3 percentage points, economists say.

Big picture: The economy is strong and getting stronger thanks to a disappearing coronavirus pandemic, massive federal stimulus cash and a torrent of pentup demand. Americans are rushing to do all the things they couldn’t do during the pandemic.

The biggest obstacles to a full recovery are major shortages of key supplies and labor owing to ongoing disruptions resulting from the pandemic.

Take supplies. Companies slashed production early in the crisis because of depressed demand and difficulties obtaining critical materials from overseas suppliers.

They’re trying to catch up now, but they were caught off-guard by the quick rebound in the economy. Lingering international trade disruptions have added to their problems.

An emerging labor shortage is an even bigger surprise. The unemployment rate still quite high and the U.S. is missing almost 8 million jobs that existed before the pandemic.

Economists say early retirements, a lack of child-care options, lingering fear of the coronavirus and generous unemployment benefits explain why more people haven’t returned to work. These problems probably won’t clear up at least until the fall.

Many companies have increased wages in an effort to lure workers, but it still hasn’t been enough. Average hourly pay rose 15 cents, or 0.5%, to $30.33 an hour in May.

What they are saying? “It’s hard to hate this report, but it’s also hard to love it. It’s great to see a pickup to job growth, but it would have been better to see a larger acceleration,” said Nick Bunker, economic research director at Indeed.