The U.S. economy surprised analysts by adding 272,000 jobs in May, exceeding expectations and calming fears of a labor market slowdown. This strong job growth is likely to reduce the Federal Reserve’s motivation to lower interest rates in the near future. Despite the positive job numbers, the unemployment rate rose to 4%, the first increase since January. The decrease in the labor force participation rate and the drop in household employment point to potential weaknesses in the economy, according to experts.
While certain sectors like health care, government, and leisure and hospitality saw significant job gains, there were also declines in full-time employment, with more people moving to part-time positions. Average hourly earnings also rose higher than expected, increasing by 0.4% on the month and 4.1% from a year ago. These positive wage growth numbers, along with the strong job gains, led to a negative market reaction, with stock market futures losing ground and Treasury yields surging.
The report was considered “hawkish” from the Fed’s perspective, indicating that a rate cut in July is less likely. Investors were already uncertain about the Fed’s future actions, given recent comments suggesting a reluctance to cut rates as inflation remains above 2%. Following the jobs report, the market’s expectation of a rate cut in September decreased, with the possibility of a second cut in December now more uncertain. The last time the Fed lowered rates was during the early days of the Covid pandemic in 2020, and the benchmark federal funds rate currently stands between 5.25% and 5.5%.
Discussion about this post