U.S. NFP: Fall Short of Market Expectations

The U.S. non-farm payroll report fell short of market estimates: Only 138K jobs were added vs an estimated growth of 181K (The ADP estimated a gain of 253K jobs) in May; and yet again there is no rise in wages growth, another gain of 2.5% in annual terms. Unemployment rate inched down again to 4.3% — another record low in years but this time was mostly due to the decline of the participation rate. Despite this less than impressive report the markets are still pricing in a June hike by the Fed and don’t seem concern, for now.

The U6 unemployment measurement, a broader measure of unemployment, also declined last month to 8.4% — the lowest rate in over a decade. In terms of revisions, there was a total downward revision of 66K for April and March combined.

In May, the rate of U.S. unemployment was 0.4 percent points below the rate recorded in May 2016.

The number of unemployed persons (6.861 million) dropped by 195K in May compared to the previous month. But the civilian labor force also fell by 429K. And in total, the participation rate inched down to 62.7%. So people got out of the labor force, which is why the unemployment rate declined last month.

Finally, wages increased in May compared to April – the hourly earnings reached $26.22 per hour — a gain of only 4 cents or 0.2%, month over month – as expected; but wages grew at an annual rate of 2.5%, year on year.

What does it mean?

The labor market is still progressing at a steady rate with growth in jobs climbing above 100K. But without higher wages and drop in participation rate, the labor market continues to show some signs of weakness. For the Fed, this report makes it harder to keep raising rates; and even though the June hike is already priced in and it’s very unlikely for the Fed to surprise and hold off this upcoming rate raise, this report indicates that perhaps the future rate hikes for the rest of the year are becoming less likely.

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