(Reuters) -U.S. job growth accelerated much more than expected in May, keeping the Federal Reserve on track to start cutting interest rates.
The Labor Department said Friday that the unemployment rate rose to 4.0% for the first time since January 2022, while nonfarm payrolls rose by 272,000 jobs last month, far more than the 185,000 predicted by economists polled by Reuters . Revisions show that 15,000 fewer jobs were created in March and April combined than previously reported.
MARKET REACTION:
STOCKS: S&P 500 e-mini futures are down 0.29%, pointing to a soft open on Wall Street. The two-year yield rose to 4.855% FOREX: The dollar index rose 0.61%, while the euro fell 0.62%
COMMENTS:
PADHRAIC GARVEY, REGIONAL HEAD OF RESEARCH, AMERICAS, ING, NEW YORK
“It’s really, really hard for the Fed to get even close to a rate cut… We’re seeing some strange weakness in terms of activity, but then we get to the big numbers like payrolls and okay, the unemployment rate has increased, I understand that, it is up to 4%, but that is not high.”
“There is no urgency for the Fed to make cuts when the labor market is firm… we have a lot of things that point to future weakness in labor markets, but the reality is this is the most significant employment print we get. We just had it, it’s completely up to date and quite strong.
QUINCY KROSBY, CHIEF GLOBAL STRATEGIST, LPL FINANCIAL, CHARLOTTE, NORTH CAROLINA
“The report suggests continued resilience in the labor market, despite the rise in the unemployment rate… The market reacted immediately, with government bond yields rising slowly and the stock futures market retreating.
The Fed could see these numbers as an obstacle to a rate cut in September, because a strong labor market leads to a stronger consumer, one that can continue to spend and fuel inflation.”
BRIAN NICK, SENIOR INVESTMENT STRATEGIST, THE MACRO INSTITUTE, NEW YORK
“It’s the kind of report that won’t cause the Fed to change the course it has been on, which is to describe the need for higher interest rates and the potential for strong job creation to maintain upward pressure on inflation . But they won’t like the fact that the unemployment rate has risen to 4%. That’s their prediction at the end of the year and here we are with the May report that it’s already here.”
“The fact that these two numbers (wage statements and unemployment rates) say such different things makes it very difficult for investors and even harder for central bankers to know exactly what is going on.”
“It’s likely we’ll still get three rate cuts because if the Fed is going to cut in September because the unemployment rate is at 4.2% or 4.3%, then they’re probably going to have to cut at every meeting.”
CHRIS ZACCARELLI, CHIEF INVESTMENT OFFICER, INDEPENDENT ALLIANCE ADVISOR, CHARLOTTE, NORTH CAROLINA (email note)
“The overall unemployment rate will likely get a lot of attention because it now has a 4-handle, but the larger-than-expected number of jobs created is the most important data point in our view.
“For those concerned about inflation – especially the Federal Reserve – the report should raise concerns that wage pressures and persistent inflation are likely to persist rather than be transitory.
“We believe the Fed will remain sidelined at least until the election and could skip rate cuts throughout the year (our base case is still one 25 basis point rate cut in December).”
EUGENIO ALEMAN, CHIEF ECONOMIST, RAYMOND JAMES, FLORIDA
“(The NFP) was surprisingly on the positive side, but the unemployment figures paint a different picture; there are discrepancies between the two. We’ll have to wait and see what the next few months will look like, because the Fed won’t budge. to lower interest rates with such a strong labor market.”
BRIAN JACOBSEN, CHIEF ECONOMIST, WEALTH MANAGEMENT ANNEX, MENOMONEE FALLS, WISCONSIN
“So much for slowing down. The headline number is striking. The details? Slightly less. There is a gap between the increase in payrolls of 272,000 and the decrease in household employment of 408,000. There was also an excessive increase in the number of people working part-time for non-economic reasons. It’s easy to undermine the strong headline number by saying it’s mainly driven by the non-cyclical healthcare and government segments, but overall weekly wage gains across all sectors are quite strong.
“The Fed will take this as a sign that they can still focus entirely on inflation without having to worry much about growth.”
PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK
“This is a popular number, and the part of most interest to the Fed is obviously hourly wages, which rose more than expected year-over-year to over 4%.”
“But this is a strong report and it suggests there are no signs of cracks in the labor market.”
“It’s a plus for the economy and a plus for corporate profits, but it’s a negative in terms of the prospects for a rate cut, perhaps as early as September.”
“This report is likely to destroy hopes for a September rate cut and push them back to perhaps December.”
“We have the CPI next week and this is just one report, but the fact that hourly wages have increased year over year is not good news for the Fed.”
(Compiled by the Global Finance & Markets Breaking News team)
