The U.S. labor market continues to defy expectations. Employers added 272K net new jobs in May, which was stronger than even the most bullish forecaster among 77 submissions to the Bloomberg survey. Yet, when you get past that upside surprise in hiring, the data appear less strong.
Job growth continues to be relatively concentrated. Hiring in the healthcare & social assistance (+83.5K), leisure & hospitality (+42.0K) and government (+43.0K) industries accounted for over 60% of job growth last month and hiring has been concentrated in these less-cyclically-sensitive industries over the past year. Temporary help employment, which has historically led overall hiring, has continued to see outright layoffs. The unemployment rate rose for the second-straight month to 4.0% as the household survey of employment reveals a strikingly weaker picture—jobs fell by 408K, according to this measure. Labor force participation also softened and the average work week held steady.
Elsewhere, we learned labor demand continues to soften. Total job openings in the economy slipped to the lowest level since February 2021 in April, and there are now just 1.2 job openings per unemployed worker, which is in line with the pre-pandemic ratio. The headline gain in payrolls cannot be ignored. It's fairly consistent with the recent monthly run rate (chart), but we do believe it should be taken in the broader context of a labor market that is showing clear signs of moderation.
The market reaction to the jobs report was swift, with market pricing now implying just one rate cut by year-end. Beyond the strong job gain, average hourly earnings rebounded 0.4% in May, pushing the annual rate back up to 4.1%. While this isn't exactly a favorable development in the fight against inflation, earnings can be noisy on a monthly basis. Policymakers will need to see a few slower inflation reports in order to start cutting rates by the fall; next week's CPI report is in focus.
We learned this week that purchasing managers are seeing less robust price growth. The prices paid measure of both the ISM manufacturing and services indices eased in May, but they still remain consistent with an expansion in prices. More simply, most industries are still seeing higher prices, though the pace of growth is slowing. The more recent drift higher for manufacturing prices (chart) also suggests we won't see as much relief from goods inflation this year, ultimately keeping the onus on the service sector in terms of making further progress toward the Fed's 2% inflation goal.
The purchasing manager data more broadly continued to show varied outcomes for the manufacturing and services sectors. The ISM manufacturing index slid for the second-straight month and remains consistent with contraction in the sector. A sharp drop in new orders was responsible for most of the pullback, indicating weaker demand conditions. In terms of services, the ISM leaped by the most in 16 months in May, but that gain largely reverses an unusually weak print for April, and suggests overall services sector activity remains steady. The economy continues to chug along.
This Week's State Of The Economy - What Is Ahead? - 01 July 2022
Wells Fargo Economics & Financial Report / Jul 14, 2022
As with the Mets and Yankees when they ran into the Astros over the last couple days, consumers staying power is showing signs of running out as inflation persists and confidence moves sharply lower.
This Week's State Of The Economy - What Is Ahead? - 03 November 2023
Wells Fargo Economics & Financial Report / Nov 08, 2023
Although payroll growth is easing, the labor market remains relatively tight. The unemployment rate inched up to 3.9% in October, slightly higher than the cycle low of 3.4% first hit in January 2023, but still low compared to historical averages.
This Week's State Of The Economy - What Is Ahead? - 25 September 2020
Wells Fargo Economics & Financial Report / Sep 28, 2020
Existing home sales rose 2.4% to a 6.0-million unit annual pace. The surge in sales further depleted inventories and pushed prices sharply higher.
This Week's State Of The Economy - What Is Ahead? - 23 July 2021
Wells Fargo Economics & Financial Report / Jul 30, 2021
In the biggest financial news this week not connected to college football conference realignment, July\'s NAHB Housing Market Index slipped one point to 80.
This Week's State Of The Economy - What Is Ahead? - 28 June 2024
Wells Fargo Economics & Financial Report / Jul 04, 2024
According to the Federal Reserve\'s preferred gauge, core inflation cooled to its softest pace in more than three years in May against a backdrop of measured consumer spending and still-strong personal income.
September 2020 Economy At A Glance
Wells Fargo Economics & Financial Report / Sep 19, 2020
A March survey by the Federal Reserve Bank of Dallas found most exploration firms need West Texas Inter-mediate (WTI) at $49 per barrel or higher to profitably drill a well.
This Week's State Of The Economy - What Is Ahead? - 08 April 2022
Wells Fargo Economics & Financial Report / Apr 11, 2022
Wednesday\'s release of the FOMC minutes stirred things up as comments showed committee members agreeing that elevated inflation and the tight labor market at present warrant balance sheet reduction to begin soon.
This Week's State Of The Economy - What Is Ahead? - 25 October 2019
Wells Fargo Economics & Financial Report / Oct 26, 2019
Sales of existing homes fell 2.2% to a 5.38 million-unit pace in September, but sales and prices were still up enough in the quarter that they will add solidly to Q3 GDP growth.
13 January 2021 Monthly Outlook Report
Wells Fargo Economics & Financial Report / Jan 19, 2021
The U.S. economy appears to be losing some momentum as the calendar turns to 2021 and the public health situation continues to deteriorate.
This Week's State Of The Economy - What Is Ahead? - 21 February 2020
Wells Fargo Economics & Financial Report / Feb 22, 2020
Minutes from the January 28-29 FOMC meeting indicate the coronavirus will not push the Fed to cut interest rates, and for the most part housing and manufacturing survey data this week supported that view.
