The May employment report showed lower-than-expected numbers, including a significant slowdown in payrolls. According to analysts at Wells Fargo, the slowdown in hiring is not wholly surprising. They noted that while the level of many labor market gauges remains impressive, the pace of improvement has cooled.
Key Quotes:
“Amid mixed messages from the ADP report and ISM surveys, the official read on hiring showed that ADP employment was closer to the mark in May. According to the Labor Department, employers added only 75K jobs last month. The slowdown since April looks rather abrupt relative to May’s only modest increase in claims, stronger employment components in both ISM surveys and a pickup in NFIB hiring plans. But the trend in hiring has clearly downshifted.”
“Some of the slowdown looks to be payback for exaggerated strength in these sectors the past few months, which suggests the trend is not as weak as May’s figures indicate. However, the breadth of the slowdown, with the smallest net share of industries adding jobs since July 2016, is likely to concern the FOMC.”
“We would expect that the FOMC would need to see more evidence of broad weakening in the economy before cutting rates.”
“Yet today’s employment report drives the FOMC one step closer to a rate cut. Average hourly earnings also came in soft, increasing 0.2%, which brought down the year-over-year change to 3.1%. The average workweek was also unchanged at 34.4 hours after hitting 34.5 hours in March. Labor income growth therefore has started to slow, which could weigh on consumer spending and make Fed officials more nervous about the outlook for growth.”
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