07 June 2024 - 09:08
In another data point that will make the Federal Reserve's job more difficult on rate cuts, the US labor market saw unexpected growth in May, defying earlier signs of an economic slowdown.
According to the Bureau of Labor Statistics data released on Friday, the labor market added 272,000 nonfarm payroll jobs in May, surpassing economists' expectations of 185,000. This is a significant increase from the 165,000 jobs added in April.
However, the unemployment rate rose to 4% from 3.9% in the previous month. Wage growth, a key indicator of inflation, increased by 4.1% year over year, reversing a previous downward trend. On a monthly basis, wages grew by 0.4%, up from a 0.2% gain in the prior month.
The labor force participation rate dropped to 62.5% from 62.7%, but participation among prime-age workers (ages 25-54) rose to 83.6%, the highest level in 22 years.
Significant job gains were reported in healthcare, which added 68,000 jobs, government employment with 43,000 jobs, and leisure and hospitality with 42,000 jobs.
This report comes as the stock market has reached record highs, driven by softer-than-expected economic data, which had boosted investor confidence in a potential Federal Reserve interest rate cut by September. However, following the labor report, the likelihood of a rate cut decreased, with investors now seeing a 53% chance, down from 69% the previous day, according to the CME FedWatch Tool.
Additional data released this week, including the latest Job Openings and Labor Turnover Survey (JOLTS), showed that job openings in April fell to their lowest level since February 2021, indicating a resilient labor market returning to pre-pandemic conditions. The ratio of job openings to unemployed individuals returned to 1.2 in May, aligning with pre-pandemic levels.
What concerns us most about the numbers, however, is a closer examination of the data reveals that full-time employment declined by 625,000.
At the same time, part-time employment increased by 286,000, and the unemployment rate rose to 4.0%.
This marks the largest decrease in full-time employment since December 2023.
Additionally, it's the first time the unemployment rate has exceeded 4.0% since February 2022.
Summary:
The US labor market added 272,000 jobs in May, surpassing expectations and complicating potential Federal Reserve rate cuts. The unemployment rate rose to 4%, while wage growth increased by 4.1% year over year. Full-time employment declined by 625,000, but part-time employment rose by 286,000. The labor force participation rate fell to 62.5%, but prime-age worker participation hit a 22-year high of 83.6%. Significant job gains occurred in healthcare, government, and leisure sectors. Despite record-high stock markets and a resilient labor market, the likelihood of a rate cut in September decreased.
Positives:
1. Job Growth: The US labor market added 272,000 nonfarm payroll jobs in May, surpassing expectations of 185,000.
2. Monthly Increase: May's job additions were significantly higher than the 165,000 jobs added in April.
3. Wage Growth: Wages increased by 4.1% year over year, reversing a previous downward trend.
4. Prime-Age Participation: Labor force participation among prime-age workers (ages 25-54) rose to 83.6%, the highest level in 22 years.
5. Sector Gains: Significant job gains were reported in healthcare (68,000 jobs), government employment (43,000 jobs), and leisure and hospitality (42,000 jobs).
6. Stock Market Performance: The stock market has reached record highs amid softer-than-expected economic data.
7. Resilient Labor Market: The labor market is showing signs of returning to pre-pandemic conditions, as indicated by the latest Job Openings and Labor Turnover Survey (JOLTS).
8. Pre-Pandemic Job Openings Ratio: The ratio of job openings to unemployed individuals returned to 1.2, aligning with pre-pandemic levels.
Negatives:
1. Unemployment Rate Increase: The unemployment rate rose to 4% from 3.9% the previous month.
2. Full-Time Employment Decline: Full-time employment decreased by 625,000, the largest drop since December 2023.
3. Part-Time Employment Increase: Part-time employment rose by 286,000, which may indicate a shift from full-time to part-time positions.
4. Labor Force Participation Rate Drop: The overall labor force participation rate fell to 62.5% from 62.7%.
5. Interest Rate Cut Likelihood Decreased: Following the labor report, the likelihood of a Federal Reserve rate cut in September decreased from 69% to 53%.
6. Unemployment Rate Exceeds 4%: This is the first time the unemployment rate has exceeded 4% since February 2022.
7. Economic Slowdown Signs: Despite job growth, the increase in unemployment and decline in full-time employment may indicate underlying economic issues.