The May payrolls were softer than expected, with slower job growth, but reflected sustained average hourly earnings growth. The unchanged unemployment rate should remind market participants that the job market is still relatively strong. Being said, the deceleration suggests that labor markets are losing some momentum as industrial production lags, trade uncertainties linger and the lift from the Tax Cuts and Jobs Act last year dissipates.
While we feel the report overstates the weakness, we now feel the Fed will likely cut rates later this year (as early as July). Any cut will be viewed as an insurance policy against the slowdown and is warranted given inflation remains below the Fed’s 2% target.
- Employers added a net new 75k jobs in May bringing the six-month average to 175k (compares to 223k in 2018); confirming that hiring is clearly decelerating.
- The unemployment rate was unchanged at 3.6%.
- The labor force participation rate remained unchanged, at 62.8%.
- Average hourly earnings rose by 0.2% month over month, lowering its annual change to 3.1% (from 3.2%), the slowest since last September. Being said real wage gains remained above 1% due to low inflation. This should continue to support consumption growth.
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