The U.S. non-farm payroll disappointed again with a gain of only 38K jobs in May – the lowest level since September 2010 and way off market estimates: The ADP estimated a gain of 173K jobs and the market expect a rise of 160K. The growth in wages, however, remains steady at 2.5% as wages increased by 5 cents, month over month. The main sector that expanded was in health care while jobs were lost, yet again, in the mining sector. The employment in the information sector contracted due to a strike. The rate of unemployment declined to 4.7%. The U.S. dollar dropped against other majors; gold and silver bounced back. Let’s breakdown this report:
The U6 unemployment measurement, a broader measure of unemployment, remained flat at 9.7%. In terms of revisions, there was a total downward revision of 59K for April and March combined.
In May, the rate of U.S. unemployment was 0.8 percent points below the rate recorded in May 2015.
The number of unemployed persons also (7.436 million) dropped by 46K in May compared to the previous month. But the civilian labor force also decreased by 458K. So there was a fall in number of people participating in the labor force and in the number of unemployed. Therefore, the participation rate declined again to 62.6%.
Finally, wages rose in May compared to April – the hourly earnings reached $25.59 per hour — a gain of 5 cent or 0.2%, month over month; wages grew at an annual rate of 2.5%, year on year – the same pace as in the previous month.
The headline figure wasn’t the only disappointing figure. The participation rate also dropped, which makes the decline in unemployment less impressive. In total the only silver lining from this report is the steady growth in wages. So what does it mean for the Fed? This report clearly puts into question the Fed’s tightening efforts and could mean the Fed won’t move at all towards raising rates in the coming months.
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