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Job Market Isn’t Slowing Yet



May’s nonfarm payroll report underscored the continued resilience of the labor market, with job growth outpacing consensus estimates. Employers added 272,000 jobs in May, eclipsing April’s gain of 165,000 and coming in above the 180,000 expected. Job growth was most prominent in sectors such as healthcare, government, and leisure and hospitality.


However, the unemployment rate increased from 3.9% to 4%, a level not seen in more than two years. Although the unemployment rate has been steadily climbing over the past year, a decline in labor force participation has contributed to this uptick. Meanwhile, average hourly earnings topped forecasts as it rose 4.1% from a year earlier, signaling that wage growth needs to cool further.


Investors responded to the report by dialing back rate cut expectations for the year. They now believe there is a 50% chance the Fed will cut rates by 25-basis points in September followed by the same probability of a second cut by year’s end.


We are not yet concerned about the rise in unemployment. We expect job growth will keep consumers spending and the economy resilient. As a result, the Fed will likely maintain its higher-for-longer policy stance for longer than the market is expecting.

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