Economists react to latest figures
The stronger-than-expected May jobs report dashed hopes for a pause in the Federal Reserve's interest rate hikes, as stubbornly strong employment and accelerating wage growth pointed to persistent inflationary pressures.
Government data showed the US added 272,000 last month, surpassing economist projections. This unexpected boost in employment and rising average hourly earnings, which climbed by 0.4% from April and 4.1% from a year ago, could keep inflation concerns high, potentially influencing the Fed's decision at its upcoming meeting next week.
“It’s a very Fed-unfriendly report – an easing-unfriendly report,” Wells Fargo chief economist Jay Bryson said in a statement. “Taking this piece of data by itself means the Fed is likely to remain on hold for the next several months.”
Despite the rise in job numbers, the unemployment rate, derived from a separate survey, increased to 4% from 3.9%, marking its first rise above 3.9% in over two years.
The rise in unemployment was primarily due to people re-entering the workforce and struggling to find employment rather than widespread layoffs. However, it still presents a challenge for President Biden's administration, which has frequently emphasized the low unemployment rate as a sign of a healthy economy.
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This report is one of the last key indicators Fed officials will review before their upcoming meeting this week, where they are expected to decide on interest rates.
Currently, the consensus among Fed watchers is that rates will remain at their two-decade high. The inflation report is also due on the morning of the Fed's meeting, which will provide further context for their decision.
Economists at Bloomberg noted that the Fed will likely be more influenced by the strong nonfarm payrolls.
“The Fed, which appears to have underplayed the measurement issues plaguing the establishment survey, likely will be more influenced by the strength in nonfarm payrolls,” Bloomberg economists Anna Wong, Stuart Paul, Eliza Winger and Estelle Ou wrote in a note. “That increases the risk that, down the line, Fed Chair Jerome Powell will be confronted with the sort of “unexpected” labor-market weakness that he said could precipitate rate cuts.”
Meanwhile, First American deputy chief economist Odeta Kushi believes the report alone will unlikely shift the Fed’s stance.
“From the Fed’s perspective, this is a mixed report. Strong job and wage growth could keep inflation concerns high,” Kushi said. “However, the uptick in the unemployment rate may offset those worries. Additionally, other labor market reports, such as the JOLTS report, indicate a still strong but gradually easing labor market.”
Kushi also noted that the participation rate, which measures the proportion of the population working or looking for work, fell slightly to 62.5%, while the rate for those aged 25-54 reached its highest level since 2002.
“The Fed will likely remain in a holding pattern, waiting for more data,” she said.
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