WASHINGTON, June 2 (Reuters) - U.S. employment increased more than expected in May, but a moderation in wages could allow the Federal Reserve to skip an interest rate hike this month for the first time since embarking on its aggressive policy tightening campaign more than a year ago.
Nonfarm payrolls increased by 339,000 jobs last month, the Labor Department said in its closely watched employment report on Friday. Data for April was revised up to show payrolls rising by 294,000 jobs instead of 253,000 as previously reported.
Economists polled by Reuters had forecast payrolls increasing by 190,000.
Despite strong hiring, the unemployment rate rose to 3.7% from a 53-year low of 3.4% in April.
Wage pressures are also subsiding, which should offer some comfort to Fed officials battling to bring inflation back to the U.S. central bank's 2% target. Average hourly earnings gained 0.3% after rising 0.4% in April. That lowered the year-on-year increase in wages to 4.3% after advancing 4.4% in April. Annual wage growth averaged about 2.8% prior to the pandemic.
The report indicated the labor market remained strong and offered more evidence that the economy was far away from a dreaded recession, though more pockets of weakness are emerging.
Despite massive layoffs in the technology sector after companies over-hired during the COVID-19 pandemic and the drag from higher borrowing costs on housing and manufacturing, the services sector, including leisure and hospitality, is still catching up after businesses struggled to find workers over the last two years. Industries like healthcare and education also experienced accelerated retirements.
The backfilling of these retirements and increased demand for services are some of the factors driving job growth. Pent up demand for workers was underscored by Labor Department data this week showing there were 10.1 million job openings at the end of April, with 1.8 vacancies for every unemployed person.
Most economists expect payrolls growth to continue at least through the end of the year.
Early on Friday, financial markets saw a more than 70% chance of the Fed keeping its policy rate unchanged at its June 13-14 meeting, according to CME Group's FedWatch Tool. The Fed has raised its benchmark overnight interest rate by 500 basis points since March 2022.
Reporting by Lucia Mutikani; Editing by Chizu Nomiyama