U.S. Jobs Market Is Still Fiery As ADP And U.S. Labor Jobs Reports Streak Far Ahead Of Expectations

Key takeaways

• The U.S. jobs report from the Labor Department came in hotter than expected, but unemployment also rose more than anticipated
• ADP jobs report yesterday showed a big increase in April for private payrolls at 278,000 – far above expert predictions, and JOLTS survey showed layoffs have lost steam
• All signs point to the Fed having more work to do on the inflation front

The non-farm payrolls report for May has arrived, bringing with it news of a far stronger amount of jobs added to the economy than anticipated. The result has flummoxed experts, who had predicted a cooling of the jobs market. It wasn’t all great news – wage growth slowed and unemployment rose more than expected – but it’s another tricky decision for the Fed ahead of their June meeting.

As for investors, the stock market was pleasantly surprised to see the jobs market booming and has risen accordingly. Let’s get into the facts and figures to try and determine what the Fed’s next step could look like.

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What did the U.S. jobs report say?

Released earlier today, the U.S. Labor Department’s employment report is the most comprehensive jobs data available to help determine how the market is faring. It was a mixed bag with a surprisingly huge jobs jump, indicating the Fed still has some work to do in the battle against inflation.

Non-farm payrolls hit 339,000 for the month, marking the 29th month in a row of positive job growth. Analysts had anticipated the U.S. economy would add 192,000 roles for the month. March and April’s figures were also revised, with the three-month average hitting 283,000 positions added monthly.

There was some good news on the wage growth front, which saw a slight decrease in May. It rose 0.3% for the month, hitting a 4.3% annual pace and down from April’s 0.5% jump.

As for unemployment, the rate hit 3.7% for May. Economists had predicted the unemployment rate would hit 3.5%, a minor increase from April’s 3.4% figure – but an increase nonetheless. It still keeps the U.S. unemployment rate at the lowest in decades.

Unemployment is calculated on household surveys, which saw 130,000 people enter the labor force in May – but it was against 440,000 more people becoming unemployed. It’s an interesting puzzle for the Fed to decipher.

No single industry saw a notable decline in hiring, with professional and business services, leisure and hospitality and construction all making gains in May. The labor force participation rate stayed at 62.6%.

What did the ADP jobs report say?

The U.S. private payrolls figure from the ADP National Employment report released yesterday showed another significant increase for May. Private payrolls increased by 278,000 last month, whereas analysts had predicted the figure would be around 170,000.

Interestingly, wage gains fell slightly to 6.5% from 6.7% in April and job movers reported an annual increase of 12.1%, a sharp fall from the previous month. This is good news for the Fed as it looks to avoid a wage-prices spiral that bakes in higher inflation to the U.S. economy.

April’s result was also slightly revised to 291,000 jobs added instead of the previously reported 296,000 jobs. The same happened for March and February. The results suggest we’re looking at a slowdown, but it’s very gradual – whereas the Fed would like the jobs market to be iced off a little more.

The U.S. Labor Department’s Job Openings and Labor Turnover Survey showed layoffs have significantly declined in the last few weeks. For every unemployed individual, there were 1.8 job openings available, up slightly from 1.7 in March.

Job openings climbed 358,000 higher to hit 10.1 million open job roles by the last day of April, whereas analysts had predicted there would be 9.375 million job openings. The stronger-than-expected results were down to the retail, healthcare and utilities sectors, while durable goods manufacturing saw a decline in job openings.

What does it mean for the markets and the Fed?

The stock market jumped at the latest U.S. jobs report, with the Dow Jones up 0.47% and the S&P 500 futures rising 1% higher. The price of Bitcoin has maintained at around $27,000 while gold prices weakened slightly.

The JOLTS April survey saw stocks dip lower, the U.S. dollar gain in strength and U.S. Treasury yields rise slightly. Gold has also been climbing higher this week off the back of yields easing slightly.

The ADP jobs report isn’t considered to be as accurate as today’s report from the U.S. Labor Department, given previous figures have been revised significantly down in the past, otherwise the results could have thoroughly spooked Wall Street about another rate hike.

As for the Fed, it’s a bit of a head-scratcher to see so many jobs added to the economy, yet unemployment increased by more than expected. It’s highly possible the Fed may now be swayed to introduce another interest rate increase at its next meeting in a couple of weeks thanks to another monster jobs result far ahead of expectations

On the other hand, a more robust unemployment rate increase and wage growth slowing may be enough to sway the Fed that a rate pause, or ‘skip’ as we’ve been hearing this week, is acceptable.

The bottom line

The jobs report was a genuinely mixed result, and we don’t envy the Fed’s position in trying to decipher what it all means. It’s anyone’s call on what happens next with interest rates, though some more economic data in the coming weeks could provide further clarity.

For investors, a more substantial jobs market means employers aren’t acting like a recession is coming soon – so they’re doing the same. The real question now is whether it can afford to wait until July for a rate hike, or if it will be spooked into making a quick decision. Either way, the battle against inflation is far from over.

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