Labor market and employment steams ahead in May

Tags: Economy

What happened?

Despite market concerns over the past week or so of softening in the economy (due to a sudden decline in the Fed’s GDPNow estimate and a soft JOLTS report), the May employment report came in much stronger than expected. Some confusing crosscurrents in the data remain to be sorted out, but the takeaway is that the economy remains robust, and the Fed should continue to have no rush in cutting rates.

The economy gained 272K jobs in May, well above the 165K in April and the 180K expected by forecasters. Even with small downward revisions and that weaker April print, this latest data is enough to keep the medium-term moving averages steady at around 225K–250K per month. That’s also a strong run rate when you account for rising new entrants to the labor force coming from elevated net migration flows—even with those considered, the labor market continues to tighten. Job gains were widespread across sectors, with healthcare again gaining the most jobs.

Wage growth was slightly higher than expected at 4.1% year-over-year. The labor force participation rate ticked down slightly to 62.5% from 62.7%, though that data can be noisy and we wouldn’t read too much into that.

The unemployment rate moved up to 4.0% from 3.9%. That remains quite low by historical standards, but if it stays at this level for the next few months, we’d expect talk of the “Sahm rule” to pick up. As a reminder, the Sahm rule suggests that when the 6-month average of the unemployment rate rises 0.5 percentage points from its low, we’re in a recession. Other recession indicators have thrown off false positives this cycle and Claudia Sahm herself has commented on how the indicator could miss in the current environment, but it’s a measure to watch nonetheless.

Overall, the aggregate household paycheck continues to grow steadily, at a very normal pace. That suggests the economy should continue expanding, barring some exogenous shock.

Implications for the Fed

The Fed was already on hold for the next few months and this data does nothing to change that stance. To be clear, it will take an easing in the labor market from these levels, or at least a notable softening of inflation, in order to get them comfortable to cut. We continue to think that is likely to occur over the remainder of the year and put them in a position to cut in December, but there is nothing in this latest data to suggest a cut is imminent.

Investing involves risk, including loss of principal invested. This information does not constitute an offer or solicitation and should not be relied upon as investment or financial advice or a recommendation of particular courses of action for all investors. Equitable Advisors, LLC and its affiliates and associates do not guarantee the accuracy or completeness of any statements, statistics, data, opinions, forecasts, or predictions offered herein.

Equitable Holdings, Inc. (NYSE; EQH) comprises two complementary and well-established principal franchises, Equitable Financial Life Insurance Company (NY, NY) and AllianceBernstein. Equitable Advisors is the brand name of Equitable Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC (Equitable Financial Advisors in MI & TN), a broker-dealer, and Equitable Advisors, LLC, an SEC-registered investment advisor. Annuity and insurance products offered through Equitable Network, LLC (Equitable Network Insurance Agency of California, LLC;  Equitable Network Insurance Agency of Utah, LLC; Equitable Network of Puerto Rico, Inc.).
GE-6683613.1 (06/2024) (Exp. 06/2026)
Tags: Economy

Related Articles