The unemployment report for the month of May released the U.S. Department of Labor on Friday last week showed that the labor market activity surged strongly across all fronts with higher pace of job gains, lower unemployment rate and a steady wage growth.
Official data showed that the U.S. unemployment rate fell to an 18-year low to 3.8% in May. The median estimates from the economists polled expected to see the unemployment rate staying unchanged at 3.9% since April.
Payrolls were seen rising 223,000 on a seasonally adjusted basis in the month of May. This marked a solid pace of job gains since March. The data underlined the fact that the U.S. employers were adding to the payrolls for 92 consecutive months which remains the longest patch of job expansion on record so far.
With revisions for March and April, nonfarm payrolls increased 238,000. Private sector added 218,000 in May with revisions to previous month showing a net gain of 12,000. The biggest gains came from the retail sector followed by professional and business services, healthcare and construction sectors.
Government hiring was seen rising by 5000 jobs during the month. Another measure of employment, the civilian employment which also includes small businesses and start-ups increased jobs by 293,000.
There was a broad based hiring activity across all sectors suggesting that the U.S. economy was rising at a steady pace.
The average hourly earnings also increased to an annual pace of 2.7% in May, up from 2.6% in April. The earnings report was probably the only weak spot in an otherwise strong labor market data. Despite tightening conditions in the labor market, wage growth continued to rise at a very modest pace.
Wage growth was seen across all sectors as it increased eight cents to $26.92. At 2.7% increase in wage growth, this is still below the April 2000 highs when wage growth had peaked 3.9% on an annual basis.
The stronger than expected data is likely to the Federal Reserve on track to hike interest rates especially with the core PCE index, the Fed’s preferred gauge of interest hovering at the 2.0% inflation target set by policymakers.
The next FOMC meeting is scheduled for in mid-June. The swaps markets have priced in a 25 basis point rate hike, reflected in the Fed funds futures rate as well. This was also evidenced by the fact that the Fed, in its recent meeting minutes signaled that interest rates should rise soon, while the central bank remains tolerant to an overshoot of inflation for a brief period of time.
U.S. manufacturing activity picks up in May
Following the jobs report, the Institute of Supply Management (ISM) reported the monthly manufacturing activity report. The ISM’s manufacturing PMI was seen rising to 58.7 in the month of May. This was higher than the estimates of 58.1.
In April, manufacturing activity had eased to 57.3. Data showed that the sub-components of the manufacturing PMI were also stronger. The new orders index had increased to 63.7 in May higher than April’s print of 61.2.
The production index had increased to 61.5 in May, up from April’s 57.2. Meantime, the employment index rose to 56.3 from 54.2 in April. Tim Fiore, the Chairman of the ISM’s business survey said “the comments from the panel (survey) indicated continued expanding business strength.”
He said that demand in the manufacturing sector remained strong as reflected in the news orders index which increased for the 13th straight month. The report which also covers inflation at factory gate on the manufacturing side showed that the price index increased to 79.5 in May, up from 79.3 in April.