The U.S. economy added far more new jobs than expected last month, but slowing wage growth and a bump higher in the headline unemployment rate suggest that gains won't likely alter market projections for Federal Reserve rate hikes.
The Labor Department's Bureau of Labor Statistics said 339,000 new jobs were created last month, the strongest rate since January and well ahead of the Wall Street consensus forecast of a 185,000 gain. Private payrolls were pegged at 283,000, the BLS said, as the unemployment rate jumped to 3.7% from the 1969 low of 3.4%.
The BLS also revised its April jobs-addition estimate higher, to 294,000 from its original estimate of a 253,000 net gain, while lifting its March estimate to 217,000 from its prior estimate of 165,000.
The BLS noted that hourly wages were up 0.3% on the month - dipping below the 0.5% gains recorded over March and April the Wall Street consensus forecast of 0.4%. On a year-on-year basis, wages were up 4.3%, compared with the 4.4% pace recorded in April, the BLS said, and the Wall Street forecast of 4.2%.
Strong Job Market 'Confounds Expectations'
"The result is squarely within the Fed’s playbook, with the result indicating a continuously growing economy coupled with moderating wage inflation," said Peter Essele, Head of Portfolio Management at Commonwealth Financial Network in Waltham, Massachusetts. "It’s a win-win from a policy perspective, bringing the notion of an economic soft landing squarely into view. We could see a June bloom in equities instead of the usual 'sell in May and go away'".
U.S. stocks extended gains following the data release, with the Dow Jones Industrial Average rising 600 points, or 1.8%, by mid-day trading and the S&P 500 gaining 55 points, or 1.3%. The tech-focused Nasdaq was marked 123 points, or 0.94% higher.
Stocks were also bolstered by the Senate's approval of a debt ceiling bill that puts the issue to rest for at least the next two years.
Senate lawmakers voted 53-36 late Thursday to approve the Fiscal Responsibility Act, which cleared the House on Wednesday by a vote of 314-117, in a move that suspends debt ceiling negotiations until after the Presidential elections in 2024.
President Joe Biden called the bipartisan agreement "a big win for our economy and the American people" and said he planned to make a formal statement at 7:00 pm eastern time on Friday.
Global stocks ticked firmly higher following the Senate's approval, with markets in Asia surging 2.25% and Japan's Nikkei 225 extending its recent advance to a fresh 33-year high of 31,524.22 points. Europe's Stoxx 600 was up around 1.5%.
Benchmark 10-year Treasury note yields gained 9 basis points from overnight levels to 3.673% while 2-year notes added another 15 basis points to change hands at 4.484%. The U.S. dollar index, which tracks the greenback against a basket of its global peers, was marked 0.28% higher at 103.852.
"The contrast between the nonfarm payrolls and unemployment indicators likely makes it difficult for the Fed to take away anything meaningful from the May jobs report," said Jason Pride, chief of investment strategy and research at Glenmede.
"It may add fuel to the argument for a pause in rate hikes at the upcoming June FOMC meeting to allow for more data to inform the future path of policy rates."
"With that said, several Fed speakers continue to highlight the need for additional tightening to bring down inflation, so another rate hike could be in the cards for the following meeting in July," he added.
CME Group's FedWatch is now indicating a 67% chance that the Fed will hold its benchmark rate steady at between 5% and 5.25% when the central bank meets next month in Washington, with bets on a July rate hike easing to 12.5%.
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