“Eye-popping” May US payrolls jump may set back Fed ease

(Reuters) – U.S. job growth accelerated far more than expected in May, keeping the Federal Reserve on track to hold off starting to cut interest rates.

The Labor Department said on Friday that the unemployment rate ticked up to 4.0% for the first time since January 2022, while nonfarm payrolls increased by 272,000 jobs last month much more than the 185,000 forecast by economists polled by Reuters. Revisions showed 15,000 fewer jobs created in March and April combined than previously reported.

MARKET REACTION:

STOCKS: S&P 500 e-mini futures turned 0.63% lower, pointing to a weak open on Wall StreetBONDS: The U.S. Treasury 10-year yield jumped and was last at 4.412%; Two-year yields surged to 4.855%FOREX: The dollar index turned 0.61% high, while the euro turned 0.57% lower

COMMENTS:

BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN

“So much for slowing. The headline payrolls number is eye popping. The details? A little less so. There’s a chasm between the payrolls number being up 272,000 and the household survey’s employment number being down 408,000. There was also an outsized jump in the number of people working part time for non-economic reasons. It’s easy to poo-poo the strong headline number by saying it’s mostly driven by the non-cyclical health care and government segments, but the aggregate weekly payrolls gains across industries is pretty strong.

“The Fed will take this to mean that they can still focus squarely on inflation without worry much about growth.”

PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK

“This is a hot number, and of course the part that is most interested to the Fed is the hourly wages, which rose more than expected on a year-to-year basis to over 4%.”

“But this is a strong report, and it suggests that there are no signs of any cracks in the labor market.”

“It’s a plus for economy and a plus for corporate earnings but it’s a negative in terms of the prospects of a rate cut perhaps as early as September.”

“This report probably erases the hope of a September rate cut and pushes it back to maybe December.”

“We have CPI next week and this is only one report but the fact that hourly wages went up on a  year-to-year basis that is not good news for the Fed.”

(Compiled by the Global Finance & Markets Breaking News team)