|Nonfarm Payrolls - M/M change||220,000||190,000 to 289,000||280,000||223,000||221,000|
|Unemployment Rate - Level||5.4%||5.3% to 5.4%||5.5%||5.4%||5.4%|
|Private Payrolls - M/M change||215,000||185,000 to 280,000||262,000||213,000||206,000|
|Participation Rate - level||62.7%||62.7% to 62.7%||62.9%||62.8%||62.8%|
|Average Hourly Earnings - M/M change||0.2%||0.2% to 0.3%||0.3%||0.1%||0.1%|
|Av Workweek - All Employees||34.5hrs||34.5hrs to 34.6hrs||34.5hrs||34.5hrs||34.5hrs|
The hawks definitely have some ammunition for the June 16-17 FOMC meeting as the May employment report proved very strong including payroll growth and, very importantly, an uptick in wage pressures. Non-farm payrolls rose 280,000, well above the Econoday consensus for 220,000 and near the top-end forecast of 289,000. Revisions added a net 32,000 to the two prior months.
Average hourly earnings came in at the high end of expectations, up 1 tenth to plus 0.3 percent. Year-on-year earnings are up 2.3 percent, a rate only matched twice during the recovery, the last time back in October 2013. Pressure here will be the focus of the hawks' arguments.
Another sign of strength includes the labor participation rate, up 1 tenth to 62.9 percent. The unemployment rate did tick 1 tenth higher to 5.5 percent which is unexpected but the gain reflects a solid gain in the labor force for both those who found a job and especially those who are now looking for a job.
Private payrolls are up 262,000 vs expectations for 215,000 and also near the high-end forecast. By industry, professional business services once again leads the list, up 63,000 following a 66,000 gain in April. Within this industry, the closely watched temporary help services sub-component is up 20,000 after two prior gains of 16,000. The rise in temporary hiring points to permanent hiring in the months ahead. Trade & transportation is up 50,000 followed by retail trade at a solid 31,000. Construction is up 17,000 but follows a 35,000 surge in April. Manufacturing, where exports are hurting, continues to lag, up only 7,000. And mining, which is being clobbered by contraction in the energy sector, is down 17,000 to extend a long run of declines.
Today's results probably aren't enough to raise expectations for a rate hike at this month's FOMC but will be enough to raise talk for a hike at the September meeting. The approach of a rate hike is a wildcard for the financial markets, likely raising volatility including for the Treasury market where turbulence has been very heavy the last month.
Market Consensus Before Announcement
The employment situation is expected to be no more than moderate in May, at 220,000 for nonfarm payroll growth which would be virtually unchanged from April's 223,000. The forecast range is relatively narrow, from 190,000 to 289,000 which points to a sense of certainty among the sample. The unemployment rate, which slipped in April, is expected to hold unchanged at 5.4 percent. Hawks at the Fed, keyed up on the first signs of wage inflation, will keep an eye on average hourly earnings which are expected to rise a notch but by a still moderate plus 0.2 percent.
The employment situation is a set of labor market indicators based on two separate surveys in this one report. The unemployment rate equals the number of unemployed persons divided by the total number of persons in the labor force, which comes from a survey of 60,000 households (this is called the household survey). Workers are only counted once, no matter how many jobs they have, or whether they are only working part-time. In order to be counted as unemployed, one must be actively looking for work. Other commonly known figures from the Household Survey include the labor supply and discouraged workers.
The Establishment Survey-a survey of over 557,000 worksites- provides additional indicators. Nonfarm payroll employment is the most popular and well-known indicator from this survey. Business establishments in the nonfarm sector report the number of workers currently on their payrolls. Double counting occurs when individuals hold more than one job. Workers on strike during the relevant week are not included in the figures.
Due to sizeable swings in payroll employment during 2010 for hiring and then layoffs of temporary workers for the decentennial Census, analysts started giving essentially equal attention to private nonfarm payrolls as to overall payrolls. This added focus continued even after temporary Census worker issues were no longer a problem as the long-duration recession caused state & local governments to cut their workforce even as the private sector began to rehire during recovery.
The average workweek is a leading indicator of employment. Businesses tend to adjust total hours worked by increasing or decreasing the workweek before hiring someone new or laying someone off. These figures come from the Establishment Survey.
Average hourly earnings are monthly payroll figures reported before deductions for taxes, social insurance and fringe benefits. They include pay for overtime, holidays, vacation and sick leave. These figures come from the Establishment Survey.
If ever there was an economic report that can move the markets, this is it! The anticipation on Wall Street each month is palpable, the reactions can be dramatic, and the information for investors is invaluable. By digging just a little deeper than the headline unemployment rate, investors can take more strategic control of their portfolio and even take advantage of unique investment opportunities that often arise in the days surrounding this report.
The employment data give the most comprehensive report on how many people are looking for jobs, how many have them, what they're getting paid and how many hours they are working. These numbers are the best way to gauge the current state as well as the future direction of the economy. Nonfarm payrolls are categorized by sectors. This sector data can go a long way in helping investors determine in which economic sectors they intend to invest.
The employment statistics also provide insight on wage trends, and wage inflation is high on the list of opponents of easy monetary policy. Fed officials constantly monitor this data watching for even the smallest signs of potential inflationary pressures, even when economic conditions are soggy. If inflation is under control, it is easier for the Fed to maintain a more accommodative monetary policy. If inflation is a problem, the Fed is limited in providing economic stimulus.
By tracking the jobs data, investors can sense the degree of tightness in the job market. If wage inflation threatens, it's a good bet that interest rates will rise; bond and stock prices will fall. No doubt that the only investors in a good mood will be the ones who watched the employment report and adjusted their portfolios to anticipate these events. In contrast, when job growth is slow or negative, then interest rates are likely to decline - boosting up bond and stock prices in the process.
The employment situation is the primary monthly indicator of aggregate economic activity because it encompasses all major sectors of the economy. It is comprehensive and available early in the month. Many other economic indicators are dependent upon its information. It not only reveals information about the labor market, but about income and production as well. In short, it provides clues about other economic indicators reported for the month and plays a big role in influencing financial market psychology during the month. Additionally, the Fed has made 6.5 percent unemployment a threshold for considering changes in policy - both for quantitative easing and the fed funds rate. And the Fed has emphasized that it is overall labor market conditions that matter - not just a specific number.
The bond market will rally (fall) when the employment situation shows weakness (strength). The equity market often rallies with the bond market on weak data because low interest rates are good for stocks. But sometimes the two markets move in opposite directions. After all, a healthy labor market should be favorable for the stock market because it supports economic growth and corporate profits. At the same time, bond traders are more concerned about the potential for inflationary pressures.
The unemployment rate rises during cyclical downturns and falls during periods of rapid economic growth. A rising unemployment rate is associated with a weak or contracting economy and declining interest rates. Conversely, a decreasing unemployment rate is associated with an expanding economy and potentially rising interest rates. The fear is that wages will accelerate if the unemployment rate becomes too low and workers are hard to find.
Nonfarm payroll employment indicates the current level of economic activity. Increases in nonfarm payrolls translate into earnings that workers will spend on goods and services in the economy. The greater the increase in employment, the faster is the total economic growth. When the economy is in the mature phase of an expansion, rapid increases in employment cause fears of inflationary pressures if rapid demand for goods and services cannot be met by current production.
When the average workweek trends up, it supports production gains in the current period and portends additional employment increases. When the average workweek is in a declining mode, it probably is signaling a potential slowdown in employment growth-or even outright declines in employment in case of recession.
Gains in average hourly earnings represent wage pressures. It is worth noting that these figures aren't adjusted for overtime pay or shifts in the composition of the workforce, which affects wages on its own. Market participants believe that a rising trend in hourly earnings will lead to higher inflation. But if increased wages are matched by productivity gains, producers likely will not increase product prices with wages because their unit labor costs are stable.