As we noted last week, the focus of the previous five days was squarely on the handful of monthly job reports released. The primary narrative was that the reports were weaker than expected. However, Nonfarm payrolls did come in better than consensus on Friday morning. While the aggregate data would traditionally be bad news, it does imply the labor market is cooling due to the Fed’s actions (interest rate increases) over the last year or so. Moreover, it’s important to remember we are still normalizing the economic effects of COVID-19, so while the numbers may have been lower than expected, when viewed in a broader historical context, they are not so concerning.
JOLTs Job Openings: The number of job openings declined by 296K from last month to 8.06 million in April, the lowest level since February 2021 and missing the market consensus of 8.34 million. In addition, job openings are down over 50% since March 2022. But does that tell the whole story? And should it be a significant concern? As the chart below shows, probably not yet. Job openings are still higher than at any point in recorded history (going back to 2000) outside of the post-COVID period in 2021.
ADP Employment Change: Private businesses added 152K workers to their payrolls in May, the least in four months and well below forecasts of 175K. In addition, the April numbers were revised slightly lower as well. However, looking at the historical data, the average number of jobs created per month from 2010 through 2019 was 175K. So, while we are below that this month, the last three months averaged 184K, which hardly shows a collapse in the labor market.
Unemployment Rate: The unemployment rate in the U.S. rose to 4.0% in May, the highest since January 2022. Up from 3.9% in the previous month, the increase surprised markets as expectations were for the rate to remain unchanged. The number of unemployed individuals increased by 157K to 6.65 million. Again, this may feel like a step in the wrong direction, but looking to the past, we find ourselves with a historically low unemployment rate. In fact, comparing the 4.0% rate with pre-pandemic numbers, it is equal to or better than 92% of monthly readings since 1994.
Nonfarm Payrolls: Total nonfarm payroll employment increased by 272K in May. Employment continued growing in several industries, led by health care, government, leisure and hospitality, and professional, scientific, and technical services. This was well ahead of consensus estimates of 185K new jobs and was easily the most constructive report of the week. In aggregate, the average monthly increase over the last year was 230K jobs. Compared to the ten years before COVID, which averaged 190K, the job market still looks pretty healthy.
All in all, while most of the reports were below expectations, the surprise from the Nonfarm payrolls report offset some of the concerns in the labor market. Given this, both equity and fixed-income markets were broadly higher for the week.
Economy
- Markets were broadly higher this week despite weaker-than-expected job numbers. The S&P 500 was up 1.3%, the Nasdaq was up 2.4%, and the small-cap Russell 2000 was down -2.1%.
- The S&P Global U.S. Manufacturing PMI was revised higher to 51.3 in May compared to 50 in April. The reading signaled a modest improvement in the health of the manufacturing sector, the fourth in the past five months.
- The S&P Global U.S. Services PMI came in at 54.8 in May, pointing to the most robust growth in the services sector in a year.
- Average hourly earnings for all employees on U.S. private nonfarm payrolls increased by 0.4% in May, above market forecasts of a 0.3% gain. It was the most significant increase in wages in four months.
Stocks
- U.S. equities were in positive territory. Technology and Healthcare were the top performers, while Utilities and Energy lagged. Growth stocks led value stocks, and large caps beat small caps.
- International equities closed lower for the week. Emerging markets fared better than developed markets.
Bonds
- The 10-year Treasury bond yield decreased eight basis points to 4.43% during the week.
- Global bond markets were in positive territory this week.
- Government bonds led for the week, followed by corporate bonds and high-yield bonds.
