Highlights:
- Employment a less-than-expected 138k in May following downwardly revised 174k (previously 211k) and 50k (was 79k) increases in April and March, respectively.
- Private employment rose 147k following a 173k increase in April.
- The unemployment rate declined to a new cycle-low of 4.3%. The broader ‘U6’ rate popular among Fed officials declined to 8.4% – also a new cycle low – from 8.6% in April.
- Average hourly earnings rose 0.2% on a month-over-month basis and 2.5% from a year ago.
The May employment increase was smaller than expected – and more-so when adding in downward revisions to earlier months. Slower employment growth has long been expected, though, as slack in labour markets is increasingly absorbed. Put in context, the average 162k monthly increase in employment yearto- date, and even the more modest 121k average over the last three months, is still above most estimates of the pace needed to keep downward pressure on the unemployment rate. Indeed, the unemployment rate inched lower to 4.3% in May, and is down almost half a point over the last three months.
Labour force participation also declined in May but there is little sign that a ‘discouraged’ worker effect was behind that drop. The broader ‘U-6’ unemployment rate, which includes discouraged workers as well as involuntary part-time workers, declined more than the official unemployment rate and wages continued to increase at a 2.5% year-over-year pace. In short, although the headline employment gain was weaker than expected, there is little in the details to suggest a fundamental weakening in labour markets that would prevent the Fed from hiking rates again in June.
