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May Employment Report Was Best Of Both Worlds

Posted June 2, 2023 at 9:45 am

Patrick J. O’Hare
Briefing.com

Today is an employment report day, and on any employment report today it is a professional hazard to start writing this comment before the report is released at 8:30 a.m. ET. That’s because the Employment Situation Report is almost always a market-moving report, so what you see in the equity futures market before 8:30 a.m. ET may not be what you see at all in the equity futures market after 8:30 a.m. ET.

What was seen in the equity futures market before today’s report was strength. The S&P 500 futures were up more than 20 points and trading 0.5% above fair value.

The positive bias was an offshoot of the Senate’s rapid passage of the debt ceiling bill by a 63-36 vote, continued strength in the mega-cap stocks, favorable — and outsized — responses to earnings reports from lululemon athletica (LULU) and MongoDB (MDB), optimism that the economy can avoid a recession because of persistent strength in the labor market, and technical momentum after the S&P 500 quickly reclaimed a posture above 4,200 on a closing basis.

Alas, the positive bias held intact after the release of the May employment report, which featured a 339,000 increase in nonfarm payrolls, according to the establishment survey, upward revisions to nonfarm payrolls for April and March, and a moderation in average hourly earnings growth.

A peculiar aspect of this report, however, is that the number of unemployed, which is determined by the household survey, increased by 440,000. The labor force participation rate, meanwhile, held steady at 62.6% and the the unemployment rate jumped to 3.7% from 3.4% in April.

The key takeaway from the report is that it featured strength in nonfarm payrolls that will help assuage concerns at this point about the economy suffering a hard landing, as well as a jump in the unemployment rate and dip in average hourly earnings growth on a year-over-year basis that should assuage some (certainly not all) of the Fed’s concerns about the tightness of the labor market and wage-push inflation going into its June FOMC meeting.

In brief, it was a report that was the best of both worlds revolving around the two suns of the economic outlook and monetary policy.

Currently, the S&P 500 futures are up 22 points and are trading 0.5% above fair value, the Nasdaq 100 futures are up 42 points and are trading 0.3% above fair value, and the Dow Jones Industrial Average futures are up 200 points and are trading 0.6% above fair value.

The 2-yr note yield is up 11 basis points to 4.44% and the 10-yr note yield is up three basis points to 3.64%. The CME FedWatch Tool, which was showing a 28.5% probability of a 25-basis points rate hike at the June FOMC meeting shortly before the release, is now showing a 34.4% probability of a 25-basis points rate hike.

Notable headlines from the May Employment Situation Report:

  • May nonfarm payrolls increased by 339,000 (Briefing.com consensus 190,000). The 3-month average for total nonfarm payrolls increased to 283,000 from 253,000. April nonfarm payrolls revised to 294,000 from 253,000. March nonfarm payrolls revised to 217,000 from 165,000.
  • May private sector payrolls increased by 283,000 (Briefing.com consensus 177,000). April private sector payrolls revised to 253,000 from 230,000. March private sector payrolls revised to 157,000 from 123,000.
  • May unemployment rate was 3.7% (Briefing.com consensus 3.5%), versus 3.4% in April. Persons unemployed for 27 weeks or more accounted for 19.8% of the unemployed versus 20.6% in April. The U6 unemployment rate, which accounts for unemployed and underemployed workers, was 6.7% versus 6.6% in April.
  • May average hourly earnings were up 0.3% (Briefing.com consensus 0.3%) versus a downwardly revised 0.4% (from 0.5%) in April. Over the last 12 months, average hourly earnings have risen 4.3%, versus 4.4% for the 12 months ending in April.
  • The average workweek in May was 34.3 hours (Briefing.com consensus 34.4), versus 34.4 hours in April. Manufacturing workweek was unchanged at 40.1 hours. Factory overtime was up 0.1 hour to 3.0 hours.
  • The labor force participation rate held steady at 62.6%.
  • The employment-population ratio was 60.3% versus 60.4% in April.

Originally Posted June 2, 2023 – May employment report was best of both worlds

(Correction: Average hourly earnings growth for April was revised to 0.4% from 0.5%. The original post indicated it had been revised to 0.3%.)

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