Key takeaways from the blowout May jobs report

Traders work on the floor of the New York Stock Exchange during afternoon trading on June 3 in New York City. 

Stocks slipped on Friday to cap off a volatile day of trading, as investors parsed a stronger-than-expected May jobs report.

The Dow fell 87 points, or 0.2%. The S&P 500 slid 0.1% and the Nasdaq Composite lost 0.2%. Still, all three major indexes gained for the week.

The economy added 272,000 jobs last month, above expectations for 180,000 positions added. The unemployment rate rose to 4%, and wage growth rose for the first time in months, according to data from Bureau of Labor Statistics.

Investors waffled over the jobs report, leading to swings in the stock market. While strong jobs gains mean the US economy is unlikely to slide into a recession, it also means the Federal Reserve is unlikely to cut interest rates anytime soon. The central bank meets next week for its June policy meeting.

Traders are pricing in one to two rate cuts this year, according to the CME FedWatch Tool.

“We believe the Fed does want to cut this year, but a cut is unlikely to happen until September at the earliest,” wrote John Kerschner, portfolio manager at Janus Henderson Investors, in a Friday note.

As stocks settle after the close, levels might change slightly.

Of the two surveys that feed into the monthly jobs report, the establishment survey is often considered the “gold standard” by economists. The separate household survey, which provides greater detail on demographics and tees up the unemployment rate, is typically looked at as more volatile due to its smaller sample size and declining response rates.

That sample size is expected to get smaller, the Bureau of Labor Statistics confirmed Friday.

The BLS expects to reduce the survey by 5,000 households to 55,000 starting in 2025, Erika McEntarfer, the agency’s commissioner, said at the quarterly meeting of the Council of Professional Associations on Federal Statistics, according to Bloomberg, which first reported the move on Friday.

In an email response to CNN, BLS spokesperson Cody Parkinson confirmed the planned reduction.

“All surveys, including the CPS, are challenged by declining response rates and rising collection costs,” Parkinson wrote. “Flat budgets are not keeping up with these rising costs. Working together, BLS and the Census Bureau have for several years found ways to trim costs without reducing sample.”

Parkinson added: “As costs continue to increase, we estimate that a sample cut of about 5,000 households will be needed in Fiscal Year 2025. We will provide formal notice of any sample cut prior to implementation.”

A worker plasters a ceiling of a new housing complex on Feb. 22, 2024, in the southwest Portland, Oregon.

Job growth and wage growth are good for Americans and their livelihoods, but too much — especially of the latter — could be cause for some consternation among central bankers wanting to see slower inflation.

Stronger-than-expected wage gains for the month pushed up average hourly earnings to 4.1% over the past year, reversing a monthslong trend of cooling.

“The Fed doesn’t directly target wages; but where the wages picked up are in the [service sector] areas where we’ve seen the most inflation,” Diane Swonk, chief economist with KPMG, told CNN.

That’s in the service sector, everything from personal care services, cleaning and home maintenance, and vehicle maintenance, she said.

“And that is something that is hard for the Fed, because in order for some of the increases we’re seeing in the service sector, we need to see offset in goods prices in order to bring inflation down,” she said. “But you need a lot of that consistently to deal with stickier inflation that we’re seeing in the service sector; and, unfortunately, wages matter more in particular areas where inflation has gotten stickiest.”

Whether the acceleration in wage gains keep things sticky, the proof will be in the pudding next week: The Consumer Price Index for May will provide a crucial look at the trajectory of inflation.

Coming out on Wednesday, the same day the Fed is set to announce its latest monetary policy decision, early economists’ projections are for consumer prices to have slowed on a monthly basis and for a key underlying inflation gauge to moderate as well.

A "Now Hiring" sign is seen at a Chipotle location on E 42nd Street on June 7 in New York City. A jobs report for the month of May released by Labor Department showed that the U.S. added employers added 272,000 nonagricultural jobs and also reported that the unemployment rate rose to 4 percent for the first time in more than two years.

May’s jobs report showed that, once again, service-providing sectors fueled employment gains, particularly the job-generating trio of health care, leisure and hospitality, and government (accounting for 60% of the gains).

However, the job growth seen in May was actually the most broad-based since January 2023, Bureau of Labor Statistics data shows.

The BLS’ “diffusion index,” which is a measurement of the percentage of industries that are adding or losing jobs, hit 63.4 in May. That means that 63.4% of 250 key private-sector industries tracked by the BLS added jobs last month.

That’s well above the 56.6% seen in April, and it marks the highest level for the index since the start of last year.

“But just because [the health care, leisure and government] sectors are powering ahead doesn’t mean other sectors are weak,” Nick Bunker, economic research director for North America at the Indeed Hiring Lab, wrote in a note issued Friday. “Interest rate-sensitive sectors, including construction and manufacturing, are still adding jobs. The gains are still broad-based.”

Construction added an estimated 21,000 jobs while manufacturing added 8,000 positions, the highest monthly gain seen so far this year, BLS data shows.

Attendees at a healthcare career fair at Cape Fear Community College in Wilmington, North Carolina, on Feb. 28, 2023.

There’s been a full rebound from the Covid-19-era “she-cession:” Not only have women’s labor force participation rates returned to their pre-pandemic form of strong gains, they’re also setting record highs month after month.

In May, the employment rate of women in their prime working years (25 to 54 years of age) ticked up to a new all-time high of 78.1%, Bureau of Labor Statistics data shows.

Prior to the pandemic, women’s labor force participation rates rose faster than their male counterparts as female-dominated industries such as health care and caregiving saw rapid growth; educational attainment for women rose substantially; and there were greater inroads by women into traditionally male-dominated fields such as construction, agriculture, and maintenance.

Since the pandemic, other developments helped serve as further drivers: increased work flexibility and strong job gains in female-dominated industries such as health care.

Still, the overall labor force participation rate dipped in May to 62.5% from 62.7%, reversing progress made earlier this year.

“The sharp rebound in immigration over the past two years had been a key factor driving the labor supply higher, so the recent slowdown in immigration flows is likely acting as a restraint,” Lydia Boussour, senior economist for EY, wrote in a note Friday.

When hiring slowed sharply in April, many wondered if the jobs market had entered a new trend of weaker growth. The May jobs report suggests that is not the case.

“It appears that the rumors of the death of the labor market were an exaggeration,” Thomas Simmons, US economist at Jefferies, wrote in a report to clients Friday.

Simmons said it looks like April was an “anomaly, not the death knell” and hiring is “back on track.”

Joe Brusuelas, chief economist at RSM, told CNN the May jobs report was “very strong” and dismissed the unemployment rate increase as “statistical noise.”

“It’s still the strongest labor market since the 1950s,” Brusuelas said. “Good news is good news.”

The jobs market is so strong that it has forced Wall Street to dial back bets on rate cuts.

There’s just a 54% chance priced into the market for at least one rate cut by the Fed’s September meeting, the final one before the election.

“A July cut is also likely a pipe dream, and it’s unlikely that things will fall apart quickly enough before September for a cut as well,” Simmons from Jefferies said.

A bartender prepares a drink in Le Central restaurant in San Francisco, California, on May 7.

America’s still-strong job market is proving to be a sturdy pillar of strength for the broader economy — one that isn’t cracking just yet.

There’s a reason why Wall Street, the White House and other institutions pay such close attention to the Labor Department’s monthly employment report released on the first Friday of every month; it’s a key gauge of the economy’s health. If Americans are getting hired and commanding strong wage growth, then they’ll be able to spend, which is the main driver of economic growth.

Fears that the economy is deteriorating fast aren’t bearing out. Payroll growth in April came in below expectations and consumer spending also slowed notably that month. But data stretching over several months is showing that April’s weaker-than-expected figures were likely just noise and not reflective of a new trend.

Through May, employers have added an average of 247,800 jobs per month, similar to last year’s robust trend. Retail spending was flat in April, but in the six months through April, retail sales have only declined twice. And the latest decline in January was largely due to unseasonably cold weather.

The economy is still expected to slow further in the second half of the year, but it’ll just reflect a continued “normalization” rather than a concerning slowdown, Garrett Melson, portfolio strategist at Natixis Investment Managers, told CNN.

Stocks turned positive after a bumpy start to Friday’s session.

The Dow rose 217 points, or 0.6%. The S&P 500 gained 0.3% and the Nasdaq Composite added 0.1%.

Investors continued to chew on the May jobs report, which showed strong job growth in May but an uptick in unemployment.

U.S. President Joe Biden gestures as he arrives at Carpiquet airport in Caen, France, today.

President Joe Biden touted May’s jobs report in a statement Friday, writing, “The great American comeback continues, but we still have to make more progress.”

“Unemployment has been at or below 4% for 30 months — the longest stretch in 50 years,” he noted, while lauding how “a record high share of working-age women have jobs.”

In the statement, the president pledged to “keep fighting to lower costs for families like the ones I grew up with in Scranton,” while hitting Republicans in Congress for “a different vision — one that puts billionaires and special interests first.” 

Stocks turned mixed Friday morning as investors continued to parse the stronger-than-expected jobs report.

The Dow rose 43 points, or 0.1%, recovering earlier losses. The S&P 500 slipped 0.05% and the Nasdaq Composite lost 0.2%.

Attendees at a City Career Fair hiring event in Sacramento, California, on June 5, 2024.

At a time when Americans and the Federal Reserve are clamoring for clear-cut data about the state of the economy, Friday’s jobs report was much more opaque than everyone had hoped.

While “it’s hard not to like a lot of jobs,” as economist Dean Baker told CNN Business in an interview, other contents of the May jobs report add to the pile of unwelcome economic news that’s included slower GDP growth, a pullback in some spending, and a rise in credit card delinquencies

“The good news is we saw the explosion in payrolls. The bad news is the rise in unemployment with an acceleration in wage gains,” Diane Swonk, chief economist with KPMG, told CNN.

The unemployment rate rose to 4% from 3.9%. It’s the first time in more than two years that the jobless rate is not below 4%.

Stronger-than-expected wage gains for the month pushed up average hourly earnings to 4.1% over the past year, reversing a monthslong trend of cooling.

“The Fed doesn’t directly target wages; but where the wages picked up are in the [service sector] areas where we’ve seen the most inflation,” Swonk said.

That’s in the service sector, everything from personal care services, dry cleaning, cleaning and home maintenance and vehicle maintenance, she said.

“And that is something that is hard for the Fed, because in order for some of the increases we’re seeing in the service sector, we need to see offset in goods prices in order to bring inflation down,” she said. “But you need a lot of that consistently to deal with stickier inflation that we’re seeing in the service sector; and, unfortunately, wages matter more in particular areas where inflation has gotten stickiest.”

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America’s hot job market isn’t setting the stage for the Federal Reserve to begin cutting interest rates, unlike other central banks that have already begun to lower borrowing costs.

The May jobs report showed that employers are continuing to hire at a brisk pace and that workers are still commanding robust wage gains. A strong US job market keeps the Fed patiently waiting for more economic data to prove that inflation is headed toward the 2% target. The central bank is tasked by Congress to stabilize prices and maximize employment, so if there isn’t any fears that the job market is deteriorating, it can focus on defeating inflation by keeping rates elevated.

That’s in contrast with what’s happening in other major economies that have been experiencing inflation and the central bank response of higher interest rates. The Bank of Canada was the first G7 central bank to cut interest rates this week. The following day, the European Central Bank also lowered borrowing costs for the 20-nation eurozone bloc for the first time in nearly five years.

For a central bank to begin cutting interest rates, officials need to “gain enough confidence” that inflation has cooled enough and is on track to slow further, based on their assessment of the broader economy’s health and the outlook.

A common phrase among central bankers is that they will make monetary policy decisions on a “meeting-by-meeting” basis. And there are also risks if a central bank cuts too soon, which could result in inflation reigniting, and if it cuts too late, which could fail to prevent an unnecessary recession.

People walk past the New York Stock Exchange (NYSE) on June 4.

Stocks slipped Friday morning after fresh data showed that the US jobs market stayed piping hot last month.

The Dow fell 92 points, or 0.2%. The S&P 500 slipped 0.3% and the Nasdaq Composite lost 0.4%.

The economy added 272,000 jobs last month, above expectations for 180,000 positions added. The unemployment rate rose to 4% from 3.9%, according to the Bureau of Labor Statistics data.

Wage growth rose for the first time in months. Workers made $34.91 an hour on average in May, up 14 cents, or 0.4%, from April. Average hourly earnings rose 4.1% from the prior year.

The latest jobs report is a double-edged sword for Wall Street. On one hand, a resilient job market lessens the chance that the economy will tip into recession. But it also puts long-awaited rate cuts from the Federal Reserve on the back burner.

Treasury yields rose following the report. The 10-year yield topped 4.4%.

Commuters at a subway station in New York, on April 25, 2024. 

Americans’ paychecks grew at a faster pace for the first time in months.

That’s great news for workers, especially considering that the cost of living has become tougher in recent years, but it points to some underlying inflation pressure. That won’t help build a case for the Federal Reserve to begin cutting interest rates anytime soon.

Workers made $34.91 an hour, on average, in May. That’s an increase of 14 cents from April, or 0.4%. From a year earlier, average hourly earnings were up 4.1% last month.

Wage growth has been steadily trending down over the past year and is well below the nearly-6% annual increase in March 2022. While it means that Americans’ wallets have continued to fatten these past few years, it’s an issue for the Fed because it might stand in the way of inflation inching closer to the central bank’s 2% target. That’s because high labor costs can be passed on to consumers, though it’s important to note that Americans can rake in robust wage gains without stoking inflation — if labor productivity is keeping up. It remains to be seen if last year’s productivity boom will persist this year.

And even if wage growth resumes slowing in the coming months, it is still well above pre-pandemic trends. From 2007 to 2020 (when the pandemic distorted economic trends), year-over-year wage growth never rose above 3.7%.

A 'Now Hiring' sign is displayed outside a resale clothing shop on June 2, 2023 in Los Angeles, California. 

Friday’s jobs report, at initial glance, appears to be a mixed bag both for Americans and the Federal Reserve, which is wanting to see a slowing in demand to help tamp down inflation.

The strong jobs market has underpinned a robust period of consumer spending that has kept the economy churning but also didn’t help in the inflation fight.

The surge in job gains and the rising unemployment offers a tale of two surveys: The monthly jobs report is composed of two surveys to measure employment levels and activity: one that surveys non-farm businesses about employment, hours and earnings, and the other of households to obtain the labor force status of the population with demographic details.

Employment fell in the household survey, while unemployment increased to just shy of 6.5 million and pushing the unemployment rate to the threshold of 4%. However, the household survey typically is more volatile than the establishment survey that showed payroll gains jumping higher.

“Is it safe out there for consumers and businesses or is the economy on the cusp of a recession?” wrote economist Chris Rupkey of FwdBonds in a note issued Friday.

The Federal Reserve building is shown May 2, 2023 in Washington, DC.

The robust May jobs report dashed Wall Street’s hopes that the Federal Reserve could begin cutting interest rates in September.

Both hiring and wage growth picked up last month, suggesting that America’s job market is still running hot. That could stand in the way of inflation cooling down all the way to the Fed’s 2% target. Traders weren’t too giddy about Friday’s employment report, at least when it comes to rate cut prospects.

Investors now think that it’s more likely that the Fed will hold interest rates steady at its September meeting than begin cutting, according to futures.

Wall Street’s best bet for the first rate cut is now December, the CME FedWatch Tool shows.

Friday’s jobs report is “literally the height of confusion,” wrote Christopher Rupkey, chief economist at FwdBonds, noting the difficulty in “trying to make sense of one of the most divergent monthly employment reports that we can ever remember.”

“This is not a day for economists to pick up the phone and answer questions about the monthly jobs report, as today’s numbers defy explanation on whether the economy is running hot or going down for the count, over the cliff into the depths of recession,” he wrote in a note Friday morning.

“The economy may be at a turning point and we don’t mean in a good way. Bet on it.”

Here’s what investors and economists have to say about last month’s stronger-than-expected jobs growth:

The U.S. flag is magnified in Federal Reserve Bank Chair Jerome Powell's glasses as he announces that interest rates will remain unchanged during a news conference at the bank's William McChesney Martin building on May 1 in Washington, DC.

Friday’s jobs report showed the US unemployment rate has now hit 4%. It hadn’t crossed that mark in more than two years, a remarkable streak that hasn’t been matched in decades.

But many economists thought the jobless rate would be well above 4% before now, given all the rate hikes aimed at slowing the economy to curb inflation.

What would that mean for the Federal Reserve? Not a whole lot, Fed Chair Jerome Powell said last month.

It would take a material weakening in the labor market to catch central bankers’ attention and potentially cause them to consider cutting rates sooner.

A couple of tenths of a percentage point increase in the unemployment rate “would probably not do that,” Powell said.