Author: smarttalksucce

The U.S. economy added 390,000 jobs in May, better than expected despite fears of an economic slowdown and with a roaring pace of inflation, the Bureau of Labor Statistics reported Friday.

At the same time, the unemployment rate held at 3.6%, just above the lowest level since December 1969.

Economists surveyed by Dow Jones had been looking for nonfarm payrolls to expand by 328,000 and the unemployment rate to edge lower to 3.5%. May’s total represented a pullback from the upwardly revised 436,000 in April and was the lowest monthly gain since April 2021.

“Despite the slight cooldown, the tight labor market is clearly sticking around and is shrugging off fears of a downturn,” said Daniel Zhao, Glassdoor’s senior economist. “We continue to see signs of a healthy and competitive job market, with no signs of stepping on the brakes yet.”

Average hourly earnings increased 0.3% from April, slightly lower than the 0.4% estimate. The year-over-year increase for wages of 5.2% was in line with expectations.

Stock market futures were volatile and pointed to a lower open on Wall Street following the report. Government bond yields moved higher.

Job gains were broad-based. Leisure and hospitality led, adding 84,000 positions. Professional and business services rose by 75,000, transportation and warehousing contributed 47,000, and construction jobs increased by 36,000.

Other areas that saw notable gains included state government education (36,000), private education (33,000), health care (28,000), manufacturing (18,000) and wholesale trade (14,000).

Retail trade took a hit on the month, however, losing 61,000 in May, though the BLS noted that the sector remains 159,000 above its February 2020 pre-pandemic level.

“That’s not really consistent with a consumer that’s itching to spend on goods,” Drew Matus, chief market strategist at MetLife Investment Management, said of the retail numbers. “The accommodation and food services story is telling you people have shifted from goods spending to services spending. The real question is how long will they sustain that.”

Despite the job gains, the BLS household survey showed that the labor market has yet to recover all the positions lost during the pandemic. Total employment remains 440,000 below the pre-Covid level.

Labor force participation edged higher, rising to 62.3% though still 1.1 percentage points below February 2020, as the labor force is smaller by 207,000 from that mark.

A more encompassing measure of unemployment that takes into account those not looking for jobs and those holding part-time positions for economic reasons moved higher to 7.1%, up one-tenth of a percentage point from April. Unemployment for Asians fell to 2.4%, the lowest in nearly three years, while the rate for Blacks was 6.2%, an increase of 0.3 percentage point.

Revisions to the March and April job estimates shaved 22,000 off the previously reported totals.

Matus said the market reaction probably indicates that investors are both anticipating more Federal Reserve interest rate hikes and a slowing jobs market. Fed officials have said they are looking to bring the jobs picture back into balance from the current high demand and low labor supply.

“I wouldn’t call it the calm before the storm, but it might be the last bit of sunlight before the clouds get a little deeper and darker,” Matus said.

The report comes amid fears that higher inflation along with geopolitical developments including the war in Ukraine and Covid restrictions in China could impact a U.S. economy that contracted at a 1.5% rate in the first quarter.

Though there have been recent signs that inflation could be slowing, the current pace is still around the fastest in 40 years. Prices at the pump specifically are at historical highs, with a gallon of regular unleaded at $4.76, up 13% from a month ago and more than 56% from a year ago, according to AAA.

That is coming with a slowing economy that is currently on track to grow just at a 1.3% rate in the second quarter, according to the Federal Reserve.

In an effort to control inflation, the Fed is trying to slow the economy with a series of interest rate hikes. Fed Governor Lael Brainard told CNBC on Thursday that she anticipates further increases in the months ahead until inflation comes down to the central bank’s 2% goal.

Businesses have been hampered in the current environment, not least by a shortage of workers that has left nearly two job openings for every available worker. A Fed report earlier this week said businesses are expressing increasing concerns about future prospects – eight of the central bank’s 12 districts reported slowing growth while four specifically cited recession fears.

Federal Reserve Vice Chair Lael Brainard said Thursday that it’s unlikely the central bank will be taking a break from its current rate-hiking cycle anytime soon.

Though she stressed that Fed policymakers will remain data-dependent, Brainard said the most likely path will be that the increases will continue until inflation is tamed.

“Right now, it’s very hard to see the case for a pause,” she told CNBC’s Sara Eisen during a live “Squawk on the Street” interview that was her first since being confirmed to the vice chair position. “We’ve still got a lot of work to do to get inflation down to our 2% target.”

The idea of implementing two more 50 basis point rate increases over the summer then taking a step back in September has been floated by a few officials, most notably Atlanta Fed President Raphael Bostic. Minutes from the May Federal Open Market Committee meeting indicated some support for the idea of evaluating where things stand in the fall, but there were no commitments.

In recent days, however, policymakers including San Francisco Fed President Mary Daly and Governor Christopher Waller have stressed the importance of using the central bank’s policy tools aggressively to bring down inflation running around its fastest pace since the early 1980s.

“We’re certainly going to do what is necessary to bring inflation back down,” Brainard said. “That’s our No. 1 challenge right now. We are starting from a position of strength. The economy has a lot of momentum.”

Economic data lately, though, has been mixed.

ADP reported Thursday that private payrolls increased by just 128,000 in May, the slowest month yet for a jobs recovery that started in May 2020. Labor productivity in the first quarter contracted at the fastest pace since 1947, and the Atlanta Fed is tracking an anemic 1.3% growth rate for second-quarter GDP, which contracted 1.5% in the first quarter.

Brainard said, however, that bringing inflation down remains the top priority and shouldn’t significantly harm an economy where household and corporate balance sheets are strong.

Markets already are pricing in two 50 basis point increases at the next meetings, which Brainard called “a reasonable kind of path.” Beyond that, though, “it’s a little hard to say,” she added, noting both upside and downside risks to growth.

In separate remarks, Cleveland Fed President Loretta Mester also said she sees consecutive 50 basis point moves ahead. While she noted that the Fed then can evaluate the progress made towards bringing down inflation, she said additional rate increases probably will be needed.

“In my view, with inflation as elevated as it is, the funds rate will probably need to go above its longer-run neutral level to rein in inflation,” Mester said in remarks to the Philadelphia Council for Business Economics. “But we cannot make that call today because it will depend on how much demand moderates and what happens on the supply side of the economy.”

In addition to the rate increases, the Fed in June has begun reducing the asset holdings on its nearly $9 trillion balance sheet. The process will entail allowing a capped level of proceeds from maturing bonds to roll off each month and reinvesting the rest.

By September, the balance sheet reduction will be as much as $95 billion a month, which Brainard said will equate to two or three more rate hikes by the time the process is finished.

Job creation at companies decelerated to the slowest pace of the pandemic-era recovery in May, payroll processing firm ADP reported Thursday.

Private sector employment rose by just 128,000 for the month, falling well short of the 299,000 Dow Jones estimate and a decline from the downwardly revised 202,000 in April, initially reported as a gain of 247,000.

The big drop-off marked the worst month since the massive layoffs in April 2020, when companies sent home more than 19 million workers as the Covid outbreak triggered a massive economic shutdown.

By ADP’s count — which usually differs somewhat from government figures — payrolls had increased by nearly 500,000 a month over the past year.

May’s slowdown in hiring comes amid fears of a broader economic pullback. Inflation running around its highest level in 40 years, the ongoing war in Ukraine and a Covid-induced shutdown in China, which since has been lifted though with conditions, have generated fears that the U.S. could be on the brink of recession.

Small business took the biggest hit during the month, as companies employing fewer than 50 workers reduced payrolls by 91,000. Of that decline, 78,000 layoffs came from businesses with fewer than 20 employees.

“Under a backdrop of a tight labor market and elevated inflation, monthly job gains are closer to pre-pandemic levels,” ADP’s chief economist, Nela Richardson, said. “The job growth rate of hiring has tempered across all industries, while small businesses remain a source of concern as they struggle to keep up with larger firms that have been booming as of late.”

In other economic data Thursday, initial jobless claims for the week ended May 28 totaled 200,000, a decline of 11,000 from the previous week and below the 210,000 estimate, according to the Labor Department.

Continuing claims fell to 1.31 million, the lowest total since Dec. 27, 1969, and indicative that while hiring may be slowing, the pace of layoffs looks muted.

Also, first-quarter productivity was revised slightly higher but still reflected a decline of 7.3%, the biggest tumble since 1947. Unit labor costs jumped by 12.6%, the biggest increase since the third quarter of 1982, according to the Bureau of Labor Statistics.

The biggest change in the ADP count came in leisure and hospitality, the sector most hit most by restrictions and which has been a leader throughout the recovery. May saw new hires of just 17,000, even as the summer tourism season gets set to hit full swing.

Education and health services led sectors with growth of 46,000, while professional and business services was next with 23,000 and manufacturing added 22,000. Service-providing jobs grew by 104,000, while good producers added 24,000.

Companies with 500 or more workers led with payroll gains of 122,000, while midsize firms contributed 97,000.

The report comes the day before the BLS issues its more closely followed nonfarm payrolls count, which is expected to show a gain of 328,000 following April’s 428,000. The unemployment rate is forecast to edge down to 3.5%, which would tie for the lowest since December 1969.

The BLS count includes government jobs, differing from ADP, which is a tally of private payrolls.