2nd Jun 2023 15:36
(Alliance News) - Growth in US employment was far stronger than expected in May, according to the US Bureau of Labor Statistics on Friday, an economic data print that one analyst called a "nightmare report" for the US Federal Reserve.
Nonfarm payroll employment increased by 339,000 in May, accelerating from a rise of 294,000 in April. That number was revised up by 41,000 from 253,000. March's increase was revised up by 52,000 to 217,000 from 165,000.
The May increase was markedly above FX Street-cited market consensus of growth in jobs of 190,000.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, said this was a "nightmare report" for the Fed.
"Overall, though, these data are strong, and it would take implausibly large revisions to change the big picture here. That's not to say a turning point is necessarily some way off; it could easily come over the next few months. But right now the data suggest that economic growth is stronger than is indicated by most other monthly data," he explained.
"As for the Fed: This is a nightmare report. Do they stick to incoming [Vice Chair Philip] Jefferson's clear signal of a June pause, just a couple days ago, or do they rewrite the script?"
Jefferson said on Wednesday argued that "skipping" a rate hike at a coming meeting would allow the Federal Open Market Committee to see more data before making decisions about the extent of additional policy firming.
With his comments, Fed officials are now divided on the best path forward ahead of another interest-rate decision to be announced on June 14, with some in favour of continuing to hike and others coming out in support of a pause.
For Marcus Brookes, chief investment officer at Quilter Investors, Friday's numbers are "only going to add fuel to the fire that the Federal Reserve has to raise rates once again, despite earlier this year appearing to be ready to press pause on the hikes."
"Clearly the interest rate rises are not feeding into the real economy as quickly as the Fed may have hoped and as a result we are seeing inflation being stickier than feared and wage increases continuing, although at a slower pace than previously," he said.
Average hourly earnings for all US employees rose 0.3% on a monthly basis to USD33.44, in line with market consensus. Wages had risen 0.5% in April from March.
Over the past 12 months, average hourly earnings increased by 4.3%, slowing slightly from a 4.4% annual increase in April. The May reading was slightly below expectations of an unchanged 4.4% rise.
The Fed will next meet to decide on US interest rate hikes at its meeting on June 13 and 14.
According to the CME FedWatch Tool, markets see a 65% chance of the Fed holding interest rates steady at its next meet. Last week, markets saw only a 36% chance of this outcome.
By Heather Rydings, Alliance News senior economics reporter
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