Contrary to concerns that a surge in oil prices due to the U.S.-Iran war could trigger an economic slowdown, U.S. employment showed unexpectedly strong results in May. With high oil prices persisting and the U.S. economy showing resilience, markets are increasingly betting that the Federal Reserve (Fed) led by new Chair Kevin Warsh will not move to cut rates.
According to the U.S. Department of Labor's Bureau of Labor Statistics on the 5th (local time), U.S. nonfarm payrolls increased by 172,000 in May from the previous month. That far exceeded the market consensus of 80,000 compiled by Dow Jones. It slowed slightly from the revised April figure of 179,000 but still maintained a solid pace of gains.
By industry, leisure and hospitality (up 70,000) and the local government institutional sector (up 55,000) led May job growth. The healthcare institutional sector (up 35,000) and social assistance institutional sector (up 12,000) also contributed to May job gains. In contrast, jobs in the financial activities institutional sector fell by 22,000.
The unemployment rate held at 4.3%, matching the previous month and in line with expectations. The labor force participation rate also remained unchanged from the prior month at 61.8%.
Average hourly earnings in May rose 0.3% from the previous month, up from April's 0.2%. On a year-over-year basis, they rose 3.4%, with the pace slowing from April's 3.6%.
Economists had warned that soaring energy prices could spur more layoffs along with reduced household spending power, but the impact of the Iran war on the job market was limited. With U.S. employment showing unexpected strength in May, market focus is expected to shift more to inflation than to the possibility of weakening jobs.
The U.S. personal consumption expenditures (PCE) price index, which the Fed uses as a guide for monetary policy, rose 3.8% in April from a year earlier, the biggest gain in about three years. That is well above the Fed's 2% monetary policy target.
Although Kevin Warsh has taken office as the new Fed chair, Wall Street analysts expect the Fed under Warsh will be unable to cut rates, contrary to the expectations of U.S. President Donald Trump.
According to FedWatch by the Chicago Mercantile Exchange (CME), the interest rate futures market lowered the probability that the Fed will hold the benchmark rate steady through the December meeting of the Federal Open Market Committee (FOMC) to 30% from 47% a day earlier. It priced a 70% chance of raising rates by at least 0.25 percentage points.