The odds for an interest rate hike by the U.S. Federal Reserve next month diminished after disappointing U.S.jobs data battered the stock market and the U.S. dollar on Friday. And after payroll additions have outpaced economic growth of slightly more than 2% annually in recent years, he expects the labor market to more closely track the economy the next year, with average monthly gains slowing to 150,000 to 180,000 a month.
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The day before the report, CNN, The Wall Street Journal, Business Insider, and Market Watch preemptively tried to prepare their readers for a “softer” number of jobs by playing up a Verizon strike of around 35,000 employees which they warned would reduce the jobs number.
The unemployment rate, meanwhile, dropped to the lowest level since November 2007, decreasing from 5 percent in April to 4.7 percent in May.
The equity markets and US dollar traded lower Friday, while gold soared higher on the heels of the release of the Employment Situation report – the key piece of employment data that the Federal Reserve considers for monetary policy. “For now we are sticking with our July call but recognize the likelihood has gone down quite a bit and that we’ll need to see a sharp turnaround in the activity data for that to play out”, J.P. Morgan economist Michael Feroli said in a report after the jobs data.
The education and healthcare sectors bucked the trend by adding 67,000 jobs, however.
Still, the latest figures ignited worries about the labor market as the economic expansion wraps up its seventh year this month. Expectations of an increase by the July policy meeting also remain low at 34%. Even excluding the Verizon strike, payrolls would have only increased by just over 70,000.
Overall, the S&P 500 digested the jobs data well and paired most of its losses to close lower by 0.2 percent after being down as much as 1 percent.
“The May report is a disaster”, said economist Douglas Holtz-Eakin, president of the American Action Forum.
“This was an unqualified dud of a jobs report”, said Curt Long, chief economist at the National Association of Federal Credit Unions, noting “the unemployment rate fell, but for the wrong reason as labor-force participation declined for the second consecutive month”. We’ve had hourly earnings going up 3.2 percent at an annual rate so far in 2016, which is a good sign. The main question is how numerous workers who’ve stopped looking for jobs would get back into the labor market if employment opportunities improved. More than half of the nation’s major industries eliminated jobs last month, the first time that’s happened in several years. At least by the most recent barometer, that is: Consumer spending surged in April by the most in more than six years. Lackluster exports cost the US economy 10,000 positions in high-paying manufacturing. The Fed raised the short-term rate last December after holding it at almost zero for seven years. In March, officials indicated that they expected two additional increases this year. Analysts suggest that the Fed may now hold off until the fall at the September meeting for a rate hike.
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“That sound you hear is Fed Chair Janet Yellen furiously re-writing her speech that she is scheduled to give on Monday” is how Paul Ashworth of Capital Economics neatly characterized the underwhelming May jobs report.
