The U.S. economy added 339k jobs in May, well above the consensus forecast of 195k. Revisions to the two prior months were positive, adding a meaningful 93k from the previously reported figures. Hiring over the last three-months averaged 283k jobs per-month, an uptick from the 253k recorded in April.
Employment gains on the service side (+257k) were relatively broad based, with healthcare (+75k), professional & business services (+64k), leisure & hospitality (+48k) and transportation & warehousing (+24k) leading the charge. The goods sector (+26k) also added jobs last month, though gains were almost entirely concentrated in construction (+25k), while manufacturing shed 2k jobs. Hiring across government remained very strong, adding 56k jobs in May.
In the household survey, civilian employment fell by 310k while the labor force gained 130k – resulting in a sharp 0.3% percentage point (ppt) uptick in the unemployment rate to 3.7%. Meanwhile, the participation rate held steady at its cyclical high of 62.6%.
Average hourly earnings rose 0.3% month-on-month (m/m) – a deceleration from April’s downwardly revised gain of 0.4% m/m. Relative to last May, hourly earnings slowed a tenth of a percentage point to 4.3%, though the more truncated three-month annualized change rose to 4.0% (from 3.8% in April).
Key Implications
Another strong reading on U.S. job creation! Over the last three months, job growth has averaged 283k jobs per-month. This marks an uptick from the steady downward trend seen over the last several months. At its current pace, job growth continues to run at a clip that’s more than three-times what’s required to meet trend growth in the labor force.
Beyond the healthy gain in employment, this morning’s report also offered other evidence that the labor market remains hot. The breadth of hiring remained reasonably strong – with only two industries shedding jobs – while revisions to the two prior months were significantly higher, adding an additional 93k jobs. And while the unemployment rate jumped by 0.3 ppts, we will discount that for now given the inherent volatility in the household survey. Moreover, at 3.7%, the unemployment remains at the upper end of the very narrow range (3.4%-3.7%) where it has oscillated over the past 15 months.
While most Fed officials seem to support skipping a June rate hike to better assess the data flow, this morning’s employment report certainly keeps the possibility of another 25-basis point (bps) hike in play later this summer. Irrespective of whether the Fed does eventually push ahead with another hike, the theme of ‘higher for longer’ seems to be reverberating through financial markets. Just a month ago, investors were pricing in 75 bps of rate cuts by year-end. Today, virtually no cuts are priced for 2023. With the labor market continuing to show incredible resilience and inflationary pressures persisting, we don’t expect the Fed to begin easing the policy rate until at least Q1 of next year.
