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US job gains totaled 272,000 in May
The US economy created many more jobs than expected in May, countering fears of a slowdown in the labor market and likely reducing the Federal Reserve’s momentum to cut interest rates.
Nonfarm payrolls increased by 272,000 for the month, up from 165,000 in April and well above the Dow Jones consensus estimate of 190,000, according to the Labor Department report. Bureau of Labor Statistics Report Friday.
At the same time, the unemployment rate rose to 4%, the first time it has surpassed that level since January 2022. Economists had expected the rate to remain unchanged at 3.9% since April.
The increase occurred even though the labor force participation rate declined to 62.5%, a drop of 0.2 percentage points. The household survey used to calculate the unemployment rate showed that the level of people reporting jobs fell by 408,000.
“On the surface, [the report] it was hot, but there was also a bigger drop in domestic employment,” said Liz Ann Sonders, chief investment strategist at Charles Schwab. “For what it’s worth, that tends to be a more accurate signal when you’re at an inflection point in the economy. . You can find weakness in the underlying numbers.”
A broader unemployment figure, which includes discouraged workers and those holding part-time jobs for economic reasons, remained stable at 7.4%.
The household survey also showed that full-time workers decreased by 625,000, while those in part-time positions increased by 286,000.
Job gains were concentrated in healthcare, government, leisure and hospitality, consistent with recent trends. The three sectors totaled 68 thousand, 43 thousand and 42 thousand vacancies respectively. The three sectors accounted for more than half of the gains.
A Now Hiring sign hangs near the entrance of the PetSmart store on December 3, 2021 in Miami, Florida.
Joe Raedle | Getty Images
Other areas of significant growth occurred in professional, scientific and technical services (32,000), social assistance (15,000) and retail (13,000).
Regarding salaries, average hourly earnings were also higher than expected, increasing 0.4% in the month and 4.1% compared to the previous year. The respective estimates were for increases of 0.3% and 3.9%.
Stock market futures lost ground as Treasury yields rose following the report.
“One step forward, two steps back. Today’s data undermines the message that other recent economic data has conveyed of a cooling US economy and closes the door on a July rate cut,” said Seema Shah, strategist- global head of Principal Asset Management. “Not only has job growth exploded again, but wage growth has also surprised positively, both moving in the opposite direction of what the Fed needs to begin easing policy.”
Previous months’ reports saw minor revisions: March’s gain fell to 310,000, a drop of 5,000, while April’s saw a cut of 10,000 to 165,000.
The report leaves investors nervous about how long the Fed will keep its benchmark interest rate at its highest level in about 23 years. In recent weeks, policymakers have indicated reluctance to cut so soon as inflation remains above the central bank’s 2% target.
The report was “certainly aggressive” from the Fed’s perspective, Sonders said, meaning the data would make it less likely the central bank would cut rates soon.
Following the jobs report, traders in the federal funds futures market lowered the likelihood of a September cut to about 56%, according to CME Group’s FedWatch measure. That was down about 12 percentage points from Thursday. The market-implied probability of a second move lower in December has dropped to about a coin toss, after being around 68% the day before.
The Fed has not cut rates since the early days of the Covid pandemic in 2020 and has raised rates 11 times between March 2022 and July 2023. The federal funds benchmark rate is currently forecast between 5.25%-5.5%.