US Labor Market On Fire: May Jobs Data Reveals Employment Boom, Steady Wage Growth, Putting The Fed On The Fence

The U.S. labor market is hot and continues to show tight conditions, posing a difficult dilemma for the Federal Reserve regarding whether to raise interest rates further or hit the pause button.

Nonfarm payrolls increased by 339,000 in May, far exceeding economists' expectations of 190,000 and rising from April's upwardly revised 294,000 increase, the Bureau of Labor Statistics reported Friday. 

The unemployment rate advanced from 3.4% to 3.7%, contrary to forecasts of an increase to 3.5%.

The average hourly wage increased by 0.3% month-over-month, in line with expectations of 0.3% but slowing from the prior month's gain of 0.4%. Annual wage growth was 4.3%, falling short of both expectations and the prior figure of 4.4%.

Key Takeaways From May Jobs Report

• The U.S. economy added 339,000 nonfarm payrolls in May, surpassing expectations of 190,000, according to Trading Economics, and higher than the previous month's 294,000 surge. The May's figure was in line with the average monthly gain of 341,000 over the prior six months.
• The change in total nonfarm payroll employment for March was revised by 52,000 jobs, from 165,000 to 217,000, and the change for April was revised higher by 41,000, from 253,000 to 294,000.
• The unemployment rate edged 0.3% higher to 3.7% in May, contrary to forecasts of an increase to 3.5%. The number of unemployed persons rose by 440,000 to 6.1 million, up from 5.7 million in April. 
• Average hourly earnings on U.S. private nonfarm payrolls increased by 11 cents, or 0.3%, reaching $33.44 in May 2023, matching market expectations. 

Sector-Specific Employment Changes

• Employment growth in leisure and hospitality continued to remain strong in May, up by 48,000.
• Construction added 25,000 jobs, while employment in transportation and warehousing increased by 24,000. 
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May's Jobs Report Key For Fed Policy

• Inflation and labor market conditions are crucial economic indicators tracked by the Federal Reserve to assess monetary policy decisions.
• This employment report is particularly important because it is the last major economic report before June 14, when the May inflation rate and FOMC policy decision will be released.
• Strong employment growth and steady wage growth may convince the Federal Reserve to maintain a more restrictive stance for an extended period of time.

Market Reactions, Investor Sentiment Ahead of Wall Street Open

• Following the publication of the employment report, investors revised their expectations for a June Fed rate increase, increasing the probability from 20% to 27%.
• Futures on the S&P 500 index, as monitored by the SPDR S&P 500 ETF Trust SPY, rose.
• The yield on the 10-year Treasury note increased by 3 basis points to 3.63%, while the yield on the 2-year note increased by 6 basis points to 4.4%.
  The U.S. dollar index remained unchanged. 

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