AWARDS
Agricultural Credit: US Employment Data for May
The May employment report confirmed a series of positive results for the third consecutive month, led by a notable positive surprise in nonfarm payrolls (NFP). The employment data continues to show a marked improvement compared to last fall and, at this point, suggests a possible reacceleration rather than a simple stabilization.
The nonfarm payrolls (NFP) figure immediately attracted attention, coming in at 172,000, well above not only the consensus of 88,000 but also the most optimistic forecast from the BBG survey. While technically a slowdown from April's 179,000, it remains a positive reading in the current environment, where the pace of achieving a balanced budget has likely slowed dramatically.
Furthermore, both March and April were revised upward, with net bimonthly revisions of +93,000, bringing the three-month moving average to its highest level in two years, +188,000. A nitpicky point might be made that private sector nonfarm payrolls were lower than expected and that increases were concentrated in a few sectors, although this is not enough to offset the strength of the headline figure and its revisions.
The unemployment rate held steady at 4.3%, remaining at a historically low level, below the 4.5% recorded in November. Household survey data were also positive, with employment recovering after a couple of months of decline, with an increase of 149,000, which offset a slight increase in the labor force, causing the unrounded unemployment rate to decline by a few basis points, from 4.34% to 4.30%. The AHE index was firmer on a monthly basis, coming in at 0.3% compared to 0.2% in April, although the annual rate eased slightly to 3.4% from 3.6%. This wouldn't be enough to dissuade the Fed from believing that the labor market isn't currently a significant source of inflationary pressure, despite strong job growth.
For the Fed, another positive report reinforces the idea that the labor market has stabilized, dispelling any lingering speculation of a rate cut this year (if there were any). That said, we're not entirely convinced that today's report significantly changes the case for a rate hike. If the Fed were to raise rates, the decision would be dependent on inflation, meaning next week's inflation data will likely play a more important role in the Fed's short-term decision-making than the employment data.
