The U.S. economy added 390,000 jobs in May as the unemployment rate held at 3.6%. After the jobs report, the Dow Jones industrial average opened lower, as the stock market rally took a breather.
The average hourly wage rose 0.3% on the month vs. expectations of 0.4%. Annual wage growth of 5.2% from a year ago trailed forecasts of 5.3%, cooling from April's 5.5%.
For a Federal Reserve worried about an overly tight job market keeping wages and inflation elevated, the strong hiring but tamer wage growth was a mixed bag. The data falls short of meeting Fed chief Jerome Powell's test for a moderation in the pace of tightening. "What we need to see is clear and convincing evidence that inflation pressures are abating and inflation is coming down," Powell said on May 17. Inflation pressures include the low unemployment rate and its impact on too-high wage growth.
Private-sector payrolls rose 333,000 in May, while government jobs rose 57,000.
Wall Street had expected the May jobs report to show a gain of 325,000 jobs, including 310,000 in the private sector. The jobless rate was expected to slip to 3.5%. Job gains for March and April were revised down by 22,000. The initially reported gain of 428,000 jobs in April was revised to 436,000.
While wage gains are strong, they're not close to keeping up with inflation. The annual CPI inflation rate was 8.3% in April.
Dow Jones, Treasury Yields React To Jobs Report
After the jobs report, the Dow Jones fell 0.7% in early Friday stock market action. The S&P 500 lost 1.2% and the Nasdaq composite 1.9%.
The recent stock market rally suggests that Wall Street is keeping an open mind about the Federal Reserve's ability to engineer a soft landing for the U.S. economy. The pullback in the 10-year Treasury yield, which had surged past 3% in early May, indicates expectations the economy will soften, easing inflation pressures.
As of Thursday's close, the Dow is down 9.65% from its all-time closing high on Jan. 4, but up 6.4% from its 52-week low on May 19. The S&P 500 has rallied 7.1% from its recent closing low, but remains 12.9% off its peak. The Nasdaq's 9.3% rally from its May 24 close still leaves it 22% below its lowest close of the 2022.
After the jobs report, the 10-year Treasury yield rose 6 basis points to 2.97%.
Be sure to read IBD's The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.
Jobs Report Details
The leisure and hospitality sector added 84,000 jobs. Factory employment grew by 18,000.
Construction jobs rose by 36,000. Health care and social assistance payrolls rose 42,000. Retailers slashed 60,700 j0bs, while transportation and warehousing jobs rose 47,000.
Unemployment Rate
The household survey, which is used to derive the unemployment rate showed that the ranks of the employed rose 321,000. The number of people participating in the labor force, meaning they're working or actively looking for a job, grew 330,000.
The share of the working age population (age 16 and up) participating in the labor force rose slightly to 62.3%.
According to the monthly survey of households, 5.95 million Americans are unemployed. That compares to 5.8 million unemployed in February 2020.
Please follow Jed Graham on Twitter @IBD_JGraham for coverage of economic policy and financial markets.
