Jobs growth exceeded estimates by nearly 100,000 new hires last month and wage pressures mounted, further complicating the Federal Reserve's rate-cut calculus, experts say.
U.S. nonfarm payrolls increased a whopping 272,000 in May, the Bureau of Labor Statistics said Friday, easily topping economists' estimate for the creation of about 180,000 jobs.
The unemployment rate, which is derived from a separate survey, ticked up to 4.0% from 3.8%. On an unrounded basis, the unemployment rate, which remains at half-century lows, came to 3.96%, or the 28th consecutive month of sub-4% readings.
"This remarkable streak of unemployment under 4% underscores the persistently tight labor market in the U.S. economy," says Joe Gaffoglio, president of Mutual of America Capital Management. "However, workers could start to see their leverage in the job market reduced and wage growth ease, as new government data shows job openings just hit their lowest mark in three years, and employers filled the fewest number of jobs since 2020."
The better-than-expected jobs report means the central bank won't be lowering the short-term federal funds rate by a quarter of a percentage point at the next Fed meeting, experts say. Chances for a cut at the September meeting – which rose recently thanks to some softness in other labor market data and rate cuts by the European Central Bank and Bank of Canada – also receded.
Fed Chief Jerome Powell and the Federal Open Market Committee (FOMC) entered the year with three rate cuts penciled in for 2024, but the robust labor market and some sticky inflation data are making the central bank's job more complicated.
Market participants are eagerly awaiting the Fed's first quarter-point cut, which will bring interest rates down from a 23-year high. As of June 7, futures traders assigned a 50% probability to the Fed enacting its first cut in September, down from 55% a day ago, according to CME Group's FedWatch Tool.
With the May jobs report now a matter of record, we turned to economists, strategists and other experts for their thoughts on what the data means for markets, macroeconomics and monetary policy going forward. Please see a selection of their commentary, sometimes edited for brevity or clarity, below.
May jobs report: The experts weigh in
"In aggregate, this report provides more backing for the Fed to keep interest rates unchanged and hold off on any rate cuts for the near future. Action in the bond market over the past couple of weeks tells us that today's stronger-than-expected jobs number caught many investors off guard. The labor market continues to look strong, and wage inflation ticked higher from 0.2% last month to 0.4% in May. Wage inflation has been a key focus for the Fed, as they have focused on inflation in their dual mandate for policy outlook. Also, we've seen a notable divergence between the household survey and the payroll survey estimates, which is reflected in the unemployment rate reaching 4% for the first time since January of 2022, despite strong payroll gains." – Austin Schaul, head of research at Avantax
"Fireworks came early this year, and the Fed will have to say 'goodbye to July' as job gains were stronger than expected and wage gains were higher than expected. As such, any thoughts of the Fed cutting rates in July have been dashed, and the 'high for longer' narrative remains firmly in place. Going forward, some moderation is still likely. But the Fed is in no position to cut rates soon and will need to revise their projections when they convene next week." –George Mateyo, chief investment officer at Key Wealth
"Even though the unemployment rate rose, the big picture is that it's hard to see the consumer as being weak given the increase in job growth and above average wage growth in May." – Sonu Varghese, global macro strategist at Carson Group
"Today's jobs numbers were stronger than expected and demonstrate the strength and resilience of the U.S. labor market. All eyes will remain on inflation data as market participants try to predict the timing of a Fed rate change. This report does not add urgency to the case for an imminent Fed rate cut." – Eric Merlis, managing director and co-head of global markets at Citizens
"There was a blip a week ago in the market when GDP and housing data were sharply lower – the market went down on the bad economic news, breaking against the trend over the past year where we have seen 'bad news' be good for stocks because it implies rate cuts could happen soon. It was only a blip though, as we see today the trend has been restored and 'good news' is now bad for stocks as rate cuts become less likely." – Brian Mulberry, client portfolio manager at Zacks Investment Management
"The employment report for May is deceiving. The headline job gain from the establishment survey suggests a robust job market. However, the household survey shows an increased unemployment rate and lower labor force participation. Given the questionable birth/death adjustments in the employment survey, we are leaning more on the message from the household component. That is, the economy is moderating. We are using bond market sell-offs to add duration." – Brad Conger, chief investment officer at Hirtle Callaghan & Co.
"The latest jobs report also increases the possibility of a soft landing consisting of optimal unemployment levels and decelerating inflation. Any rate cuts by the Fed will have to be impeccably timed to ensure the rate of cooling in labor demand does not happen before the effects of lower borrowing costs have time to be felt throughout the economy." – Noah Yosif, chief economist at the American Staffing Association
"This week the bulls had two steps forward and one step back. Claims and ISM were weak but now payrolls are strong. It continues the confusing narrative on the economy and inflation, but next week we’ll get more clarity from CPI and the dot plot. Today's jobs data might not have much impact in the grand scheme of things." – David Russell, global head of market strategy at TradeStation
"Employers added 272,000 jobs in May, surpassing consensus expectations. The diffusion index surged from 56.6 to 63.4 over the month, indicating widespread hiring across various industries. Average hourly earnings increased from 3.9 to 4.1, reversing the path towards a rate aligned with a 2% inflation target. The report alters the moderating signal observed in April, potentially extending the timeline of a Federal Reserve rate cut." – Dawit Kebede, senior economist at America's Credit Unions
"Today's nonfarm payroll surprise points to the continued, and surprising, strength of the U.S. economy in the face of tighter conditions and other economic data points signaling economic slowdown. While unemployment slightly ticked up to 4% for the first time since January of 2022, the number of jobs added drastically outperformed expectations, adding further complexity to the Fed's pivot timing decision." – Ben Vaske, senior investment strategist at Orion
