U.S. Economy Adds 390,000 Jobs in May, Unemployment Rate Holds at 3.6%

[MongiIG]

MAY NFP KEY POINTS:

• U.S. employers add 390,000 workers in May, versus expectations of a gain of 325,000 jobs
• The unemployment rate holds at 3.6%, slightly above forecasts
• Average hourly earnings advances 0.3% on a monthly basis, bringing the annual figure to 5.2% from 5.5% in April

 

Most Read: S&P 500, Nasdaq 100: Dimon Warns of Hurricane as Banks Buckle Up

MARKET REACTION TO NFP DATA

Updated at 8:55 am Eastern Time

Immediately after the NFP report crossed the wires, U.S. yields shot up across the Treasury curve, boosting the U.S. dollar. Strong jobs numbers suggest that the labor market, already at full-employment, continues to tighten, a situation that can push the Federal Reserve to deploy more aggressive actions to cool the economy in its efforts to restore price stability.

DXY 5 MINUTE CHART

Source: TradingView

EMPLOYMENT REPORT KEY DETAILS

8:35 am Eastern Time

The U.S. economy added 390,000 jobs in May after an upwardly revised 436,000 gain in April, blowing past consensus expectations that called for an increase of 325,000 positions, a sign that the labor market continues to tighten and that the Federal Reserve's measures to cool the economy are not yet bearing fruit.

Despite solid payroll gains, the unemployment rate held at 3.6%, but the culprit was an increase in the participation rate, which moved up to 62.3% from 62.2%, as more people returned to the labor force lured by better-paying opportunities and perhaps by the soaring cost of living.

Meanwhile, the establishment survey revealed that average hourly earnings, a closely watched inflation metric, advanced 0.3% in seasonally adjusted terms, bringing the annual figure to 5.2% from 5.5% in April, a sign that wage pressures may be moderating. As background information, economists polled by Bloomberg News were projecting earnings to rise 0.3% month-on-month and 5.3% year-on-year.

ECONOMIC DEVELOPMENTS

Market sentiment has soured recently on fears that the U.S. economy may headed for a hard landing in response to the Fed’s aggressive steps to withdraw stimulus in its fight against red-hot inflation, now running at the fastest pace in four decades. Although the central bank began normalizing policy less than three months ago and has only raised interest rates twice, financial conditions have tightened markedly amid hawkish forward guidance, adding to uncertainty about the path of the recovery.

In any case, today’s robust job numbers show that extreme pessimism may not be entirely warranted at this time, although it is important to underscore that unemployment is a lagging indicator that fails to capture the most recent economic developments.

Looking ahead, traders should continue to monitor labor market dynamics, keeping in mind that the U.S. consumer is the bedrock of the economy, accounting for roughly two-thirds of GDP. If hiring conditions deteriorate, household spending could weaken dramatically, a situation that would spell trouble for the outlook.

On the monetary policy front, the NFP report changes nothing for June or July, meaning that the FOMC is likely to press ahead with its well-telegraphed plans to lift borrowing costs by half a percentage point at each of those meetings. For September, expectations have been in a flux in recent weeks, but sturdy employment data may cause traders to position for the posibility of another 50 bps hike in September.

EDUCATION TOOLS FOR TRADERS

• Are you just getting started? Download the beginners’ guide for FX traders
• Would you like to know more about your trading personality? Take the DailyFX quiz and find out
• IG's client positioning data provides valuable information on market sentiment. Get your free guide on how to use this powerful trading indicator here.

---Written by Diego Colman, Market Strategist for DailyFX. 3rd June 2022