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The US labour market gained 272,000 jobs in May, far more than forecast, pushing back market expectations for the timing of Federal Reserve rate cuts.
The figures from the Bureau of Labor Statistics for non-farm payrolls last month compared with a prediction of a 180,000 rise in a Bloomberg poll of economists.
President Joe Biden, battling attacks on his economic record by Donald Trump ahead of this November’s US presidential election, hailed what he called “the great American comeback” in jobs.
He stressed that unemployment has now been at or below 4 per cent for 30 months — the longest stretch in half a century. “On my watch, 15.6mn more Americans have the dignity and respect that comes with a job,” Biden said.
US employers have consistently kept hiring — often far exceeding expectations — despite a succession of interest rate increases that have taken borrowing costs to their highest for more than two decades.
But voters have been reluctant so far to credit the president for the economy’s performance and Biden’s electoral prospects could be bolstered by interest rate cuts.
Following Friday’s data release, the chances of a rate cut at the Fed’s mid-September meeting — ahead of the election — fell from 81 per cent to 57 per cent, according to market pricing.
Markets had previously fully priced in an interest rate cut by November. After the jobs figures were published, that was pushed back to December.
“Strong job growth and rising wage inflation supports our long-held view that interest rates will stay higher for longer,” said Torsten Slok, chief economist at Apollo Global Management. “We continue to expect no Fed cuts in 2024.”
Treasury bond yields surged in response to the news, with the two-year Treasury yield, which moves with interest rate expectations and inversely to price, leaping 0.17 percentage points on the day to 4.88 per cent.
The dollar strengthened 0.8 per cent against the euro, with one unit of the latter fetching $1.08 in Friday afternoon trading. US stocks finished a choppy session slightly lower.
The figures come less than a week before the US central bank’s June meeting, when it is expected to keep interest rates on hold.
By contrast, the European Central Bank cut rates this week for the first time in almost five years.
Strong US payroll figures are part of a wider trend in advanced economies. Inflation has been slower to fall in 2024 than hoped with robust labour markets underpinning economic resilience.
The Fed, whose preferred inflation metric is now at 2.7 per cent compared with its 2 per cent target, has taken a cautious approach to lowering borrowing costs.
Citigroup economists changed their rate cut expectations after the jobs report, betting that the first move will come in September rather than July.
But Citi added that the report “does not change our view that hiring demand, and the broader economy, is slowing”, arguing this would prompt the Fed to cut rates by a total of 0.75 percentage points, in September, November and December
Friday’s figures showed average hourly pay up by 4.1 per cent in the year to May, significantly above the rate central bankers see as consistent with hitting their inflation target.
However, the unemployment rate also rose, to 4 per cent from 3.9 per cent.
Jason Furman, a former administration official now at Harvard University, said the uptick in joblessness could be the most important part of Friday’s data release.
“If we wake up next month and the unemployment rate is 4.1 per cent, I think that will get [the Fed’s] attention,” Furman said. “If you have an unemployment that is above 4, that would put a rate cut in play earlier.”
The payrolls number for April, previously estimated at 175,000, was downgraded to 165,000.
“There’s very strong job growth, but the unemployment rate did tick up,” said Ryan Sweet, chief US economist at Oxford Economics. “For the Fed it is going to be a close call if they can cut in September, but I don’t think this report takes that off the table.”