US Nonfarm payrolls for May came in better than expected, with the unemployment rate steady and wage growth rising.
Despite the strong labor market report, hiring could see a slowdown in the coming months as trade uncertainty and concerns over consumer spending lead firms to become more cautious on hiring.
Breaking Down The Report
The Nonfarm payrolls report for May showed solid growth, with 139,000 jobs added to the US economy, beating estimates of 126,000. The unemployment rate remained steady at 4.2%, despite the fluctuations of unemployment claims. Wage growth came in stronger than expected, with average hourly earnings coming in at 0.4% MoM and 3.9% YoY, compared to forecasts of 0.3% and 3.7%. ⁽¹⁾
Main Drivers and Losses in Job Sectors
Private education and healthcare services added 87,000 jobs, while leisure and hospitality added 48,000, which were key drivers of the jobs growth. Manufacturing lost 8,000 jobs, with jobs declining in retail by 7,000 and government jobs declining by 22,000 due to the layoffs made by DOGE. ⁽²⁾
Sectors like tech, business services, transport, logistics, construction, and financial services barely added jobs, raising concerns on the health of the economy. ⁽³⁾
Economic Outlook and Policy Tensions
Economic concerns remain high despite the solid jobs report. Consumers and businesses are showing concern over President Trump’s trade policies which could slow growth and refuel inflation.
Trump has also been pressuring Federal Reserve Chairman Powell to cut interest rates by 100 basis points, which he thinks it could boost the economy even further.
However, the Fed still remains in a wait and see stance to assess the economic data driven by tariff policies. Markets are pricing in a rate hold at the Fed’s next meeting on June 18. ⁽⁴⁾
Risks of Weaker Jobs Figures Ahead
Looking forward, jobs growth could potentially slow. Sectors like private healthcare, leisure and hospitality may see a decline due to potential cuts in health program spending under Trump and reduced consumer spending on discretionary items like dining and entertainment. Federal government jobs are also likely to shrink further as efforts led by Elon Musk to reduce government spending take effect. ⁽⁵⁾
The Federal Reserve’s recent Beige Book noted widespread uncertainty delaying hiring, with businesses reporting lower labor demand, fewer work hours, and plans for staff reductions. Trade uncertainty and concerns about consumer demand are making companies more cautious. The Beige Book also warned of price increases, which could fuel inflation. ⁽⁶⁾
Market Reaction
The US Dollar surged 0.3% after the release while gold dropped 1.5% due to reduced concerns about the country’s economic downturn and dampened hopes for imminent Fed rate cuts this year. The S&P 500 closed above 6,000 for the first time since Feb. 21, fueled by gains in technology shares.
