The US economy defied expectations of an economic slowdown by adding 339,000 jobs in May. The unemployment rate climbed to 3.7% (from 3.4%) while wage growth cooled (to an average annual growth rate of 4.3%).
Job gains were broad-based, with strong additions in professional services, healthcare, leisure and hospitality and construction.
Source: Financial Times
Employment and wage growth are core drivers of inflation, particularly in the services sector, and economists have been watching for signs of a slowdown in these measures as an indicator that price pressures are on course to slow.
The unexpectedly strong report could challenge expectations that the US Federal Reserve (Fed) will pause its cycle of interest rate increases at its next meeting in mid-June after 10 consecutive rate rises. Following release of the data, traders bet that the Fed would raise rates again this month. Futures markets priced in a roughly 30% chance of an interest rate increase in June, but 80% probability of an increase by the following meeting in July. Markets also scaled back their expectations of whether the Fed will begin to cut rates later in the year.
The two-year Treasury yield, which moves with interest rate expectations, rose 0.05% to 4.39%.
The labour data is the latest in a series that have reinforced the challenges of bringing inflation back towards its target level, following elevated job openings and stubbornly high core inflation figures. But as the case for a resilient economy builds, and the risks of recession appear to fade, so does confidence that listed companies can weather the storm of rising rates. This probably accounts for Wall Street’s positive reaction to the labour data.
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