NFP: U.S. Adds 223K vs 190K Jobs Expected In May

by Ike Obudulu Last updated on June 5th, 2018,

Washington, DC, USA: Payrolls exceeded expectations at 223000 in May following a revised 159,000 gain, compared with the 190,000 median estimate in a survey of economists with the jobless rate matching historic Lows, U.S. Bureau of Labor Statistics figures showed Friday..

U.S. hiring rose more than forecast in May, wages picked up and the unemployment rate matched the lowest in almost five decades, indicating the strong labor market will keep powering economic growth.

Average hourly earnings increased 2.7 percent from a year earlier, more than projected, while the jobless rate fell to 3.8 percent from 3.9 percent to match April 2000 as the lowest since 1969.

The report reinforces expectations for Fed policy makers to raise interest rates when they meet June 12-13, and may spur bets on two more hikes this year after that, rather than one. Steady hiring and lower taxes will bolster consumer spending, helping to support the projected rebound in U.S. growth this quarter and continuing to trim the unemployment rate. Wage gains, while positive in the latest report, have yet to show a sustained acceleration.

The unemployment rate had been projected to remain at 3.9 percent, while wage gains exceeded estimates for 2.6 percent.
Upward Pressure

The jobless rate fell further below Fed estimates of levels sustainable in the long run, a potential source of upward pressure on wages and inflation, according to some economists.

Revisions to prior reports added a total of 15,000 jobs to payrolls in the previous two months, according to the figures, resulting in a three-month average of 179,000.Economists estimate that monthly payroll gains of less than 100,000 are sufficient to keep pushing

down the unemployment rate, which is derived from a separate Labor Department survey of households and is near levels considered consistent with at or below full employment.

Total nonfarm payroll employment increase of 223,000 in May, compares with an average monthly gain of 191,000 over the prior 12 months

The payroll gains in May were fairly broad-based, with construction adding 25,000 jobs and manufacturing adding 18,000. Service providers boosted employment by 171,000, led by increases in retail; education and health services; leisure and hospitality; and transportation and warehousing. Auto and parts makers and temporary help services recorded declines.

Employment in education and health services rose by 39,000 in May.

Retail trade added 31,000 jobs, with gains occurring in general merchandise stores and in building material and garden supply stores. Over the year, retail trade has added 125,000 jobs.

Employment in professional and business services continued to trend up in May, increasing by 31,000, and has risen by 483,000 over the year.

Employment in construction continued on an upward trend in May, increasing by 25,000 over the month and up 286,000 over the past 12 months. Within the industry, nonresidential specialty trade contractors added jobs over the month.

The number of employed people in the workforce rose by 293,000, the report showed, while the number of unemployed decreased by 281,000, helping push down the jobless rate.

Labor Health

The participation rate, or share of working-age people in the labor force, decreased to 62.7 percent from 62.8 percent the prior month. The employment-population ratio, another broad measure of labor-market health, rose to 60.4 percent from 60.3 percent.

Fed Governor Lael Brainard noted in a speech Thursday that the employment-to-population ratio for prime-age workers remains about 1 percentage point below its pre-crisis level.

The participation rate remains a closely-watched measure for central bankers. While improving prospects for employment and wages are helping attract people who were on the sidelines of the job market, the retirements of older workers have been exerting downward pressure on participation.

The tight job market is helping lift worker pay. Average hourly earnings rose 0.3 percent from the prior month, topping projections for 0.2 percent, following a 0.1 percent gain, the report showed. The 2.7 percent gain for the 12 months ended in May followed a 2.6 percent advance.

A separate measure, average hourly earnings for production and non-supervisory workers, was even more upbeat, increasing 2.8 percent from a year earlier, the most since mid-2009. That followed a 2.6 percent gain in April.

By and large, the reported showed an economy with plenty of vigor. Most industries added jobs and worker pay increased at a somewhat faster pace.

The unemployment rate fell again to the lowest level since April 2000 as more people found work. The last time the jobless rate was even lower was in 1969.

FOMC  is still widely expected to raise rates in June, but it might only raise them once more in 2018 barring a dramatic upturn in inflation that seems unlikely.

The Dow Jones Industrial Average DJIA, -1.02% and S&P 500 SPX, -0.69% were set to open higher in Friday trades. The 10-year Treasury yield TMUBMUSD10Y, +2.00% climbed to 2.92% from 2.86%.

Nonfarm Payroll (NFP) Report

The Nonfarm Payroll (NFP) report is released on  the first Friday of every month at 8:30 AM ET (Eastern Time) by the U.S. Bureau of Labor Statistics. NFP is a highly anticipated economic report which signals the strength of the US economy. It reveals the health of the jobs market, which filters down into inflation

It is closely analysed to predict Gross Domestic Product (GDP) growth and inflation rates and has the power to move global financial markets.

Economic indictors in the NFP report that markets and policy makers care about the most are Non-Farm Employment Change, Average Hourly Earnings and the Unemployment Rate:

Non-Farm Employment Change

Non-Farm Employment Change measures change in the number of employed people during the previous month, excluding the farming industry. Job creation is an important leading indicator of consumer spending, which accounts for a majority of overall economic activity

Average Hourly Earnings

The wages growth data, Average Hourly Earnings, measures change in the price businesses pay for labor, excluding the farming industry. It’s a leading indicator of consumer inflation – when businesses pay more for labor the higher costs are usually passed on to the consumer;

Unemployment Rate

Unemployment Rate measures the percentage of the total work force that is unemployed and actively seeking employment during the previous month.

Although it’s generally viewed as a lagging indicator, the number of unemployed people is an important signal of overall economic health because consumer spending is highly correlated with labor-market conditions.

Unemployment is also a major consideration for those steering the country’s monetary policy, especially the Federal Open Market Committee, FOMC.

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