Good Morning on this Fantastic Friday,

Today is Jobs report day, arguably the most important report of the month and is a set up for the next Fed meeting.

Well, it was mixed for sure with the unemployment rate jumping to 3.7% from 3.4% but the number of new hires also spiked to 339k from an expected 190k. And this folks, is why we don’t float loans into big data reports. Prior to the data, markets saw a 25% chance of a Fed rate hike in June. After the data, that has bumped to almost 50%. The 10-yr Treasury has sold off to 3.68% which is the next line in the sand. Fingers crossed we hold it. Mortgage bonds off a bunch as well so pricing is worse today than yesterday. I do think the Fed still pauses in June, but while yesterday I would have been confident they are done hiking altogether, I am not confident now. I am looking towards the CPI, PPI, and PCE numbers later this month for clarity.

With the jobs report being the news for the day, I am including a few different comments and analysis from the WSJ.

What Economists are saying.

• “This report is full of mixed signals between strong jobs growth, rising prime-age labor force participation, cooling wage growth and the rise in unemployment, but the mixed signals hide an overall solid report.” —Daniel Zhao, Glassdoor
• “The report today continues to point to a soft landing for the economy and should keep market expectations for a July hike in play.” —Ellen Zentner, Morgan Stanley
• “The data show that job growth is continuing at a rapid pace, but wage pressures are not building. While payrolls accelerated for a second month, we think the wage data in particular will give the Fed room to hold policy steady at the upcoming meeting.” —Rubeela Farooqi, High Frequency Economics
• “The U.S. labor market is proving resilient in the face of 14 months of interest rate hikes, but it might be too resilient for the Fed to feel comfortable.” —John Leer, Morning Consult
• “There’s a lot to be confused and even concerned about in this month’s jobs report.” —Nick Bunker Indeed

Still a super strong jobs market, despite rising unemployment

May’s jobs report looked confusing, with the unemployment rate jumping to 3.7% from 3.4% yet the number of jobs soaring. But the underlying data still show surprising strength. Payrolls jumped 339,000 in May from April and previous months were revised up by 93,000. Combined, that’s double what Wall Street expected. But the household survey, from which the unemployment rate is derived, showed employment down 310,000. Such divergences aren’t unheard of, and often result from differences in how the two surveys define employment. For example, the number of unincorporated self-employed and workers on unpaid absences, who aren’t counted in the payroll survey, fell sharply from a year earlier, while the number of people with more than one job rose sharply. When adjusted to the payroll definition, household employment was up 394,000, a very healthy figure.

Still-firm wages, solid job growth will unsettle the Fed

May’s jobs data provide little comfort to the Federal Reserve, which wants a cooler job market with softening wage pressure. Overall wages rose 0.3% in May from April, a very slight deceleration, but for nonmanagement employees only, they were up 0.5%. In the last three months, overall wages rose at an annual rate of 4% and nonmanagement earnings grew 4.9%, neither showing any deceleration. To be consistent with the Fed’s 2% inflation target, wages can probably only grow around 3% to 3.5% over time. The rise in the unemployment rate is a modest sign of increased slack in the drum-tight jobs market. Still, labor supply isn’t improving much: The overall labor force participation rate stayed at 62.6%.

Supply and Demand

The unemployment rate rose to 3.7%, its highest level since October 2022. “The spike in the unemployment rate was the most troubling sign in this report. Almost half of the increase in the number of unemployed workers was due to a spike in Black unemployment,” said Nick Bunker, head of economic research at Indeed Hiring Lab. “This might be statistical noise, or it could be a sign of Black workers disproportionately bearing the brunt of a rise in joblessness.”

The labor-force participation rate for people ages 16 and over held steady last month at the highest level since the Covid-19 pandemic hit, while the share of the population that has a job fell slightly.

Overall participation might have plateaued, in large part because older Americans have dropped out of the labor force. That indicates the overall labor market could stay tight. But for prime-age people, ages 25 to 54, the participation rate matched its highest level since 2002. That suggests a still-strong labor market is attractive to Americans who aren’t in school or heading toward retirement.

Who’s hiring, who’s firing, who’s holding on

Health care, government and professional sectors added the most jobs last month. Information shed workers, a possible reflection of a television writers’ strike.

Several sectors have hit record employment levels, including construction. Construction is typically an interest-sensitive industry but appears to be holding up well despite rising rates and high costs for materials.

In one sign that employers are holding onto workers while the economy slows: The average workweek for all employees on private nonfarm payrolls edged down by 0.1 hour to 34.3, its lowest level since the pandemic first hit.

Please remain safe and stay healthy, enjoy the weekend and first, make today great!