The US economy created 172,000 new jobs during the month of May, beating analysts’ expectations for only 80,000. This is the third month in a row that there have been strong payroll gains, effectively lifting the labor market out of a slump. Payrolls have averaged gains of 188,000 positions over the last 3 months, the best since March 2024. The May unemployment rate remained unchanged at 4.3 percent.
The labor data for March and April was revised upwards. New jobs in March rose from 29,000 to 214,000, while April went from 64,000 to 179,000. Wages are another story. Year-over-year hourly earnings in May are up 3.4 percent, down from 4.6 in April; the consumers’ purchasing power has been eroded by rising inflation and they remain anxious about the future.
The data has changed things for the Fed and its position on interest rates. Inflation is rising and the labor market is healthy, so the need to cut interest rates has disappeared. A shift has occurred; the question has become: do rates need to rise to curb inflation? Treasury yields have risen as traders now feel rates could go up before the end of the year.