Surprise jobs report pummels Fed rate-cut bets as wages leap

A surprisingly strong May jobs report added to market concerns that inflation pressures in the world's biggest economy remain elevated.

Jun 7, 2024 - 18:30

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Surprise jobs report pummels Fed rate-cut bets as wages leap

The U.S. economy added more than a quarter-million new jobs last month, a better-than-expected tally that will challenge market bets on a near-term interest-rate cut from the Federal Reserve.

The Labor Department's Bureau of Labor Statistics said that a net 272,000 new jobs were created in May, up from the downwardly revised total of 155,000 recorded in April and firmly ahead of this year's average of around 245,000.

Economists were looking for a headline total of 185,000 in the May report.

The economy has added 1.254 million new jobs over the first five months of the year, down around 16% from the 1.496 million total created in the year-earlier period.

Average hourly earnings jumped from April levels and were up by 0.4%, while the year-on-year gain quickened to 4.1% from last month's 3.9% tally.

The headline unemployment rate edged higher, to 4%, ending its streak of sub-4% readings at a record 27 consecutive months. The labor-force-participation rate, meanwhile, eased to 62.5%.

Federal Reserve Chairman Jerome Powell and his colleagues will publish new growth and inflation projections following their two-day policy meeting next week in Washington.
Chip Somodevilla/Getty Images

U.S. stocks erased gains following the data release, with futures contracts tied to the S&P 500 indicating a 22-point opening-bell decline and those tied to the Dow Jones Industrial Average suggesting a 150-point decline. The tech-focused Nasdaq is set to fall 60 points.

Benchmark 10-year Treasury note yields were marked 10 basis points (0.1 percentage point) higher at 4.403% following the data release, while 2-year notes added 11 basis points to 4.855%.

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CME Group's FedWatch, meanwhile, now suggests a 52% chance that the Fed starts cutting rates in September, down from around 68% prior to the jobs report release.

Data from payroll-processing group ADP published on June 5 showed 152,000 new private-sector hires over the month of May. But that report also said that salary increases for job changers slipped to 7.8%, the lowest wage premium for changing jobs in more than three years.

Earlier this week, data from the Bureau of Labor Statistics showed that April job openings fell to the lowest levels in three years. Around 8.06 million positions were unfilled and the so-called quits rate held at prepandemic levels of around 2.1%.

Challenger Gray's closely tracked report on corporate layoffs showed that May job cuts were largely flat with the previous month at 63,816, but were down around 20% from the year-earlier period.

Overall hiring plans this year, however, have fallen to the lowest levels since 2014, with announced additions of just under 51,000. That's around 50% lower than the level announced over the first five months of 2023.