The U.S. economy added far more jobs than expected in May, countering fears of a slowdown in the labor market and likely weakening the Federal Reserve’s impulse to cut interest rates.
Nonfarm payrolls rose by 272,000 this month, up from 165,000 in April and well above the Dow Jones consensus estimate of 190,000, the Labor Department’s Bureau of Labor Statistics reported Friday.
At the same time, the unemployment rate rose to 4%, the first time it has broken through this level since January 2022. Economists had expected the rate to remain unchanged at 3.9% from April.
The increase came despite the labor force participation rate falling by 0.2 percentage points to 62.5%. The household survey used to calculate the unemployment rate showed that the number of people who reported being employed fell by 408,000.
“On the surface, [the report] “It’s been hot, but there’s also been a bigger decline in household employment,” said Liz Ann Sonders, chief investment strategist at Charles Schwab. “As far as value goes, that tends to be a more accurate signal when you’re at an inflection point in the economy. You can find weaknesses in the underlying numbers.”
A broader unemployment figure, which includes discouraged workers and those holding part-time jobs for economic reasons, held steady at 7.4%.
The household survey also found that the number of full-time employees fell by 625,000, while the number of part-time employees increased by 286,000.
Employment growth was concentrated in healthcare, government, and leisure and hospitality, consistent with recent trends. The three sectors added 68,000, 43,000 and 42,000 jobs, respectively. The three sectors accounted for more than half of the increases.
A “Now Hiring” sign hangs near the entrance to the PetSmart store on December 3, 2021 in Miami, Florida.
Joe Raedle | Getty Images
Other significant growth areas included professional, scientific and technical services (32,000), social assistance (15,000) and retail (13,000).
When it comes to wages, average hourly wages were also higher than expected, rising 0.4% month-on-month and 4.1% year-on-year. The respective estimates assumed increases of 0.3% and 3.9%, respectively.
Stock market futures lost ground while Treasury yields rose after the report.
“One step forward, two steps back. “Today’s data undermines the message that other recent economic data has conveyed of a slowing U.S. economy and closes the door on a rate cut in July,” said Seema Shah, chief global strategist at Principal Asset Management. “Not only has job growth exploded again, wage growth has also surprised on the upside, both moving in the opposite direction to what the Fed needs to begin easing monetary policy.”
There were minor corrections in the reports of previous months: the increase in March fell to 310,000, or by 5,000, while in April there was a decrease of 10,000 to 165,000.
In the report, investors are unclear about how long the Fed will keep its key interest rate at its highest level in about 23 years. In recent weeks, policymakers have indicated a reluctance to cut interest rates soon as inflation remains above the central bank’s 2 percent target.
The report is “certainly hawkish” from the Fed’s perspective, Sonders said, meaning the data would make it less likely the central bank will cut interest rates any time soon.
After the jobs report, traders in the Fed funds futures market reduced the possibility of a September cut to about 56%, according to CME Group’s FedWatch gauge. That was around 12 percentage points less than on Thursday. The market’s implied probability of a second down move in December fell to about a coin toss, down from about 68% a day ago.
The Fed has not cut interest rates since the early days of the Covid pandemic in 2020 and raised them 11 times between March 2022 and July 2023. The key interest rate for overnight money is currently 5.25% to 5.5%.
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2024-06-07 13:39:36
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