- Companies hire 390,000 workers, more than the 325,000 consensus forecast.
- Average Hourly Earnings rise 5.2% as expected, down from 5.5% in April.
- Federal Reserve rate program supported by labor market gains.
- Equities fall on rate concerns, Treasury yields and the dollar rise.
The US labor market continued its slow progress to normality as firms hired 390,000 workers in May, bringing total nonfarm employment to just 822,000 less than in February 2020, according to the Bureau of Labor Statistics on Friday.
Unemployment was stable at 3.6%, where it has been for three months, 0.1% higher than at the start of the lockdowns and the lowest level since December 1969. Analysts in the Reuters survey had anticipated 325,000 new workers and a 3.5% jobless rate.
Payrolls have been ratcheting lower this year from the 561,000 monthly average in 2021. The three-month moving average for Nonfarm Payrolls (NFP) has fallen from 579,000 in January to 408,000 in May. In 2019 NFP averaged 163,000 per month.
Jobs were spread across most categories, with only two, retail and motor vehicles and parts shedding workers. Leisure and hospitality led all groups, as it has for three months, with 84,000 new workers. In the past 12 months, the area has added 199,000, more than any other category and 52% of total private hiring. Professional and business services added 75,000, transportation and warehousing rose 47,000 and construction increased 36,000. Retail trade lost 61,000 positions though it is still 159,000 above its pre-lockdown level.
Bureau of Labor Statistics
Leisure and hospitality employment was hardest hit by the lockdowns and subsequent restrictions, losing more workers than any other industry. The predominance of these workers in the hiring of the last year suggests that the economy is not creating new jobs but simply filling those left empty by the economic collapse brought on by the lockdowns.
If that is the case, the 1.5% GDP contraction in the first quarter and the 1.3% estimate for the current three months from the Atlanta Fed, are unlikely to provide equal job creation once the losses from 2020 are filled.
Average Hourly Earnings rose 0.3% in May and 5.2% for the year. Earnings have declined sharply from their peak of 5.6% in March. Labor Force Participation was unchanged at 62.3%, matching its post-pandemic high, though 1.1% below the February 2020 level of 63.4%.
The Employment Situation Report, the official name for the May NFP data, was no doubt a relief for Fed policy makers. Having turned the bank toward inflation after two years of focusing on job creation, payrolls are still a major sensitivity.
A collapse in hiring would put great strains on the Fed rate hike program. With May successfully behind them, the voting members have just June’s NFP on July 8 before considering a second 0.5% hike at the July 27 bank meeting. This month’s FOMC meeting on June 15 has a 94.2% probability for a 0.5% increase.
The decline in wage gains to 5.2% in May underlines the threat to consumer spending from rampant inflation and the danger to growth in the the United States' consumption-based economy.
Consumer purchasing power has been eroding for 14 months.
In March CPI was 8.5% and Average Hourly Earnings (AHE) rose 5.6%, a difference of 2.9%. In April CPI was 8.3% and wages gained 5.5%, an improvement to 2.8%. The sharp fall in May AHE to 5.2% means that even if CPI comes in as expected next Friday at 8.2%, the purchasing gap will have expanded to 3.0%. With West Texas intermediate (WTI) up 10.6% in May, the potential for CPI to run hotter than expected is high. The faster the inflation rate, the greater the drain on consumer finances.
If Americans pull back on spending before the end of June, second quarter GDP could easily become negative, meeting the traditional standard for a recession.
How will the Fed justify a rate increase at the September 21 meeting if the US is in a recession?
May job creation has kept Federal Reserve rate policy on track, virtually guaranteeing a 0.5% increase this month and another in July. The credit, equity and currency markets reflected that reality.
Equities tumbled with the Dow losing 348.58 points, 2.05% to 32,899.70. The S&P 500 dropped 1.63%, 68.28 points to 4,108.54. As has been common in this stock descent, the NASDAQ shed the most, falling 2.47%, 304.16 points to 12,012.73. At Friday’s close the Dow was 9.46% lower this year, the S&P 500 13.8% and the NASDAQ 23.22%.
Treasury returns rose across the yield curve, though they remain below the highs reached in the first week of May. The 10-year yield climbed 2.6 basis points to 2.941% and the 2-year added 1.9 points to 2.657%.
The dollar saw gains in all the major pairs with the smallest in the USD/CAD as WTI closed at $118.77, its highest since the first week of March and the reaction to the Russian invasion of Ukraine.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Follow us on Telegram
Stay updated of all the news
AUD/USD extends gains above 0.6700 amid subdued US Dollar
AUD/USD is trading firmer above 0.6700, having rallied to the highest in nearly two weeks on Wednesday after the Fed hiked rates by another 25bps, as expected. The dovish guidance by the Fed smashed the US Dollar alongside the Treasury bond yields.
EUR/USD re-attempts 1.0900 on dovish Fed-induced USD weakness
EUR/USD is trading near 1.0900, extending gains early Thursday. The pair stays firmer amid a broadily depressed US Dollar. Investors are assessing the latest dovish outlook from the Fed ahead of the SNB and BoE policy outcomes, which could trigger fresh volatility surge across the FX board.
Gold approaches $1,980 as USD Index extends losses on Fed’s dovish guidance
Gold price is gathering strength to capture the immediate resistance of $1,980.00 in the Asian session. The precious metal has found demand as the US Dollar Index (DXY) has resumed its downside journey and fears of a US banking crisis have refreshed.
Binance market share could drop after abolishing most zero-fee trading, boosts TrueUSD stablecoin
Binance phased out almost all zero-fee buying and selling Bitcoin (BTC) along with multiple trading pairs from its platform after nine months on Wednesday. An exemption was allowed for the TrueUSD/Bitcoin (TUSD/BTC) pair. This built atop a March 10 move to quietly wind down BUSD auto-conversion.
Bank of England and Swiss National Bank both set to hike
The Bank of England and Swiss National Bank both make monetary policy announcements tomorrow, March 23. Our base case is for the Bank of England to raise its policy rate 25 basis points to 4.25% this week, and then pause tightening. However, an unexpected quickening of inflation has added some uncertainty to that outlook.