EconoFACTS

June 07, 2024 | 10:04

U.S. Nonfarm Payrolls Exceed All Expectations

Economist

Chief U.S. Economist and Managing Director
Economics

Scott Anderson is BMO’s Chief U.S. Economist and Managing Director. He analyzes and forecasts U.S. national and ... (Read more)

Scott Anderson , Ph.D.

Chief U.S. Economist and Managing Director
Economics

Scott Anderson is BMO’s Chief U.S. Economist and Managing Director. He analyzes and forecasts U.S. national and ... (Read more)

The debate rages on: is the U.S. labor market cooling or not? We got very different messages from the May Establishment and Household Employment surveys today that appears to settle nothing. The Employment Report showed resilience with a stunning headline job gain of 272k, up from a downwardly revised 165k increase for April. This exceeded all economist estimates on Bloomberg and was the best monthly job gain since March. Indeed, it was good enough to bring the second quarter’s monthly average job gains back up to 219k just a bit below the first quarter’s 267k average, and a pace of monthly job creation that is still likely running “too hot” for the FOMC’s liking.

More troubling for the Fed’s inflation fight was the fact that the strong payroll gain was combined with average hourly earnings growth that jumped a bigger than expected 0.4%, pushing the year-on-year growth rate back up to a relatively “hot” 4.1% from a previously reported 3.9% pace last month that was also revised up to 4.0%.

Job growth picked up in most major goods and service sectors last month, including government (+43k), leisure and hospitality (+42k), professional and business services (+33k), construction (+21k), finance (+10k), and manufacturing (+8k). Job growth slowed but remained decidedly positive in education and health care (+86k) and trade and transportation (+27k). Only temporary help firms saw a net loss of employment of 14k.

Yet, the Household Survey continues to tell a very different story of a cooling U.S. labor market. Household employment plunged by 408k in May with the labor force sinking by 250k, pushing the unemployment rate up to a new tightening cycle high of 4.0%. The Household survey has shown outright net job losses in four of the last six months. At the same time, the average duration of unemployment increased to 21.2 weeks from 19.9 in April, showing it is getting somewhat harder to find a new job. More negative labor market news was seen in the participation rate that sank by two-tenths of a percentage point to 62.5%, while average weekly hours worked held at a relatively low 34.3 hours.

Bottom Line: The Fed and investors will have to wait for more decisive information to see which way this economy and inflation is ultimately going to break. The bond market today is putting much more weight on the strong headline payroll number with investors pushing off rate cut bets and Treasury bond yields rising across the curve. As of this writing, the 2-year yield is up 12 basis points with the 10-year yield up 13 basis points. Fed funds futures are putting about a 60% probability on a Fed rate cut by September, down from 83% yesterday. The ambiguity on the May labor market front will place even more attention on next week’s CPI inflation data and how Jay Powell and the FOMC are factoring in the latest numbers into their rate-cut expectations at next week’s FOMC Meeting.

Table 1 - United States — Employment

(change in thousands)

Source: BMO Economics, Haver Analytics