Mixed messages on US jobs leaves the market little wiser.

Companies are reporting a jobs surge in May, yet households are telling us employment plunged. Who to believe? Well, with wage growth continuing to soften and hours worked edging lower the market is thinking the June FOMC meeting "skip" narrative still holds. I agree but I’m nervous that a hot core CPI print on 13 June could yet tip the balance.339,000 Numbers of jobs added in May.

Jobs blast through expectations

The latest US jobs report for May revealed an impressive addition of 339,000 jobs, surpassing the consensus expectation of 195,000. The narrow range of expectations, between 100,000 and 250,000, highlights the accuracy of the forecast. Furthermore, revisions to the previous two months' data indicated an additional 93,000 jobs were created, further emphasizing the robustness of job growth.

The report, which surveys employers, highlights a significant increase of 283,000 jobs in private employment. Once again, the sectors of private education & health played a pivotal role, contributing 97,000 jobs. Additionally, the leisure and hospitality sector experienced a notable increase of 48,000 jobs, while professional/business services added 64,000 jobs. Government employment also witnessed growth, with an addition of 56,000 jobs.

However, the manufacturing and IT sectors experienced a decline in employment, with 2,000 and 9,000 job losses respectively.3.7% May unemployment rate

But unemployment and wages tell a different story

However, I observe a significant increase in the unemployment rate, which rose from 3.4% to 3.7%. This rate is calculated through a different survey, one that focuses on American households. Surprisingly, the survey revealed a decrease in household employment by 310,000 individuals, accompanied by a rise of 440,000 in the number of self-classified unemployed Americans. Therefore, it is important to consider which survey resonates with you and adjust your reaction accordingly.

Adding to the data, average hourly wage growth has moderated, as anticipated, to 0.3% on a month-on-month basis, compared to the previous month's growth of 0.5% (which was revised downward to 0.4%). Consequently, the annual rate of hourly earnings wage growth stands at 4.3%, a trend that aligns with the desired direction of the Federal Reserve, as depicted in the chart below. The contradiction between a strong demand for workers and a perceived scarcity in supply, alongside the softening of wage pressures, is remarkable. Nevertheless, it is a situation that the Federal Reserve will gladly embrace.

Wages growth is undershooting inflation (YoY%)

Source: Macrobond, ING

June "skip" still most likely, but a hot CPI print could make it a very close call.

Following the release of this rather mixed report, expectations for a market rate hike have slightly increased. The contrasting outcomes between the household survey and the payrolls number suggest that the narrative of the June FOMC "skip" is currently holding. It's important to bear in mind that labour data is the most delayed among all the data releases and provides the least reliable indication of the economy's actual direction.

While my current outlook suggests that we have reached the peak for the Fed funds target range, it is crucial to remember that we will receive CPI data one day before the June 14 FOMC meeting. A monthly core rate print of 0.4% (as the consensus currently expects) or even 0.5% has the potential to shift market sentiment in favour of a rate hike once again.

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