The takeaway from this week’s payroll report is that the US labor market remains surprisingly resilient despite the naysayers and widespread expectations of slower growth.
The Bureau of Labor Statistics reported that (1) MAY Nonfarm payrolls increased by 172K jobs in May, well above the consensus forecast of 80K–90K. (2) Unemployment held steady at 4.3% for a third consecutive month, and (3) Average hourly earnings rose a healthy 0.3% in May and 3.4% over the past year. Moreover, MARCH and APRIL payroll estimates were revised upward by a combined 93K jobs, indicating stronger hiring than previously reported.
A gain of 172,000 jobs is more than enough to absorb population growth and keep unemployment from rising. After concerns earlier in the year that hiring was slowing sharply, this report suggests employers are still adding workers at a solid rate. The strongest job gains were concentrated in: Leisure and hospitality, Local government and Healthcare and social assistance. Financial services lost jobs, while some white-collar sectors continued to show relative weakness thanks in part to AI.
The combination of strong payroll growth, a stable unemployment rate, and upward revisions to prior months argues against the view that the economy is sliding into recession. Most labor-market indicators continue to point toward moderation rather than contraction. Finally, Wage growth of 3.4% year-over-year is not especially alarming for the Federal Reserve. Earnings are rising, but not at a pace that would normally signal an overheating labor market.
Call it “a Goldilocks” report. (Not too hot, not too cold. Just right.) Now I’m a cynic when it comes to government, and notoriously skeptical of the BLS number fabricators after the Biden fakery. But what we learned from that experience is that the BLS numbers, actual or fake, are the numbers the bond and equity markets will react to in the near term.
The downside from a great jobs report is that it gives the Federal Reserve less reason to lower interest rates. Financial futures have responded by eliminating expectations for a 2026 rate CUT, and instead making a rate HIKE a 50-50 proposition. Rate hikes, should they occur, would be bearish for stocks.
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