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The latest nonfarm payrolls report from the Labor Department largely surprised Wall Street, with job gains coming in comfortably ahead of expectations, and wage growth also managing to beat estimates. Indeed, the report was hot enough that many economists and market strategists threw in the towel on a potential July interest-rate cut by the Federal Reserve.

The Labor Department reported Friday that nonfarm payrolls grew by 272,000 in May, sailing past economists’ estimates of 190,000. Figures for the past couple of months were revised only marginally lower: The new number for April payrolls was +165,000 (10,000 lower), while March payrolls were revised by 5,000 jobs lower, to +310,000.

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Despite the easy beat in job growth, May’s unemployment rate actually ticked higher, to 4% from 3.9% in April. That ended a 27-month streak of sub-4% unemployment.

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Here’s a brief look at the jobs report’s most pertinent details, which illustrate a still-roaring employment environment.

  • May payrolls: +272,000 (vs. +190,000 est.)
  • May unemployment: 4.0% (vs. 3.9% est.)
  • May hourly earnings: +0.4% (vs. +0.3% est.)
  • April payrolls (revised): +165,000 (vs. +175,000 previously)
  • March payrolls (revised): +310,000 (vs. +315,000 previously)

Friday’s numbers largely represented a reversal of what appeared to be a slowdown in payroll numbers. Other recent economic reports provided some signs of slowing, keeping Wall Street a little optimistic about the potential for rate cuts this year, but this most recent employment situation seemed to push expectations further down the road.

“Even though the unemployment rate rose, the big picture is that it’s hard to see the consumer as being weak given the increase in job growth and above average wage growth in May,” says Sonu Varghese, Global Macro Strategist at Carson Group. “This is likely to keep the Fed in a holding pattern, with the first cut likely coming only in September, assuming we continue to see softer inflation. A July cut is off the table at this point.”

Also worth noting was continued strength in wage growth; hourly earnings were up 0.4% month-over-month and 4.1% year-over-year.

“Wage growth remains solid … which is welcome news for workers and consumers,” says Joe Gaffoglio, President of Mutual of America Capital Management. “However, with consumer spending recently dipping, lower- and middle-income consumers appear to be drawing a line in the sand, especially as they continue to feel pressure on their budgets from high prices for everyday goods and services, and elevated interest rates.”

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Digging deeper into the May jobs report …

It was another strong month for health care, which added 68,000 jobs—coming in ahead of its brisk 12-month pace of 64,000 monthly. Government employment improved by 43,000 jobs, followed by another 42,000 jobs in the leisure and hospitality industries. Professional, scientific, and technical services added 32,000 jobs, well ahead of the 19,000 jobs it has gained on average over the past year.

There were few areas of weakness. Department store jobs were off by 5,000 in May, while home furnishings retailers saw 4,000 jobs disappear.

“On net, today’s jobs report was hotter than expected with payrolls and wages above expectations but offset on the margin by a higher unemployment rate,” says Jason Pride, Chief of Investment Strategy & Research, Glenmede. “This probably doesn’t change the Fed’s decision process that likely sees rates on hold again at next week’s FOMC, but it is roughly consistent with a path toward rate cuts beginning in the fall.”

Expert Reactions to May’s Jobs Report

Here’s what strategists, financial managers, and other experts had to say about the May employment situation:

John Kerschner, Head of U.S. Securitized Products & Portfolio Manager, Janus Henderson Investors

“There is a massive dichotomy between the Bureau of Labor Statistics NFP [nonfarm payrolls] number (which comes from surveys of companies) at 272k and the Census Bureau’s job number which showed a loss of 408,000 jobs. The Census Bureau number drives the unemployment rate. Over the last year, these two measures of employment have diverged by almost 2.5 million jobs. The household survey paints a much weaker job market. We would expect revisions in the NFP numbers in the months ahead to bring these numbers more in line.

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“Our take is this suggests the economy is slowly slowing and perhaps higher rates are starting to infiltrate through the economy and impact the market. With much of the recent data coming in softer than forecasted, expectations for Fed cuts have increased this week. Expectations for rate hikes remain tempered from the seven priced in at the beginning of the year to maybe one or two this year. We believe the Fed does want to cut this year, but a cut is unlikely to happen until September at the earliest. And when they do, it’s likely they message this does not kick off a consistent hiking cycle of 25 basis points per meeting, but perhaps a more infrequent cadence such as every other meeting. It doesn’t particularly matter if they start hiking in September or in November, what matters is the cadence from there.”

Jeff Schulze, Head of Economic and Market Strategy, ClearBridge Investments

“Combined with an upside surprise to wages, this effectively takes a September rate cut off the table as there is no concern on the full employment side of the Fed’s dual mandate at the moment. While the data is not ambiguously hawkish with the unemployment rate ticking up to 4% and weaker job openings from earlier this week, the Fed can have patience and remain data dependent over the next quarter to ensure that inflation is moving sustainably back to target.

“Today’s release should reverse much of soft-landing optimism priced in recent weeks on the yields front with the reestablishment of the higher for longer mantra. We expect to see higher yield pressure across the curve as well as market choppiness as this new reality is priced.”

Scott Helfstein, SVP, Head of Investment Strategy, Global X

“The combination of stellar job growth and healthy average earnings likely means the consumer remains a driving force in the economy. Consumption is already forecast to slow meaningfully into the back part of the year, but numbers like this suggest the consumer may be more resilient than expected. Put alongside accelerating investment, this could signal better than expected growth in the second half of the year.” He added: “For the Fed, this means they can be patient with rate cuts, and the market has largely priced that in.”

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Steve Rick, Chief Economist, TruStage

“We are currently in uncharted territory with a stagnant unemployment rate, leading the Fed to take their time in deciding how to tackle getting that inflation number lower. However, evidence of a booming economy, like this month’s strong job growth, has kept the Fed from taking action in the near future. The good news is we continue to move further from fears of a recession, easing concerns amongst consumers.

“Despite this month’s strong report, we expect monthly job growth to slow later this year as the demand for labor falls. We have already begun to see labor impacted, with higher earners the first to see a waning job market. Longer term—we see this cycle progressing in tandem with a decrease in inflation. We expect that the total job growth in 2024 will come in closer to the average from the 2010s of 2.2 million, bringing unemployment to the long run average of 4%.”

Joe Gaffoglio, President, Mutual of America Capital Management

“After a lower-than-expected April jobs report, the labor market bounced back, revealing its ongoing strength. Despite downward revisions in previous reports regarding the number of new hires, and the fewest available job openings in three years, today’s news highlights the resilience of the labor market. Given this continued growth, we don’t expect the Federal Reserve to cut rates anytime soon, especially as inflation remains sticky above the Fed’s 2% target level.”

“The remarkable 27-month streak of unemployment under 4% that underscored the persistently tight labor market in the U.S. economy has come to an end. Workers could see their leverage in the job market reduced and wage growth slow, as new government data shows job openings just hit their lowest mark in three years, and employers filled the fewest number of jobs since 2020.”

Jason Pride, Chief of Investment Strategy & Research, Glenmede

It’s clear now that calls for disinflating wage growth were too early. Average hourly earnings growth ticked up to 0.4% on a month-over-month basis, which is the largest increase since January. This will be a closely watched development since wages are a key cost input for services, which remain the stickiest part of the CPI basket holding the Fed back from cutting rates.”

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Kyle Woodley is the Editor-in-Chief of WealthUp. His 20-year journalistic career has included more than a decade in financial media, where he previously has served as the Senior Investing Editor of Kiplinger.com and the Managing Editor of InvestorPlace.com.

Kyle Woodley oversees WealthUp’s investing coverage, including stocks, bonds, exchange-traded funds (ETFs), mutual funds, real estate, alternatives, and other investments. He also writes the weekly Weekend Tea newsletter.

Kyle spent five years as the Senior Investing Editor at Kiplinger, and six years at InvestorPlace.com, including two as Managing Editor. His work has appeared in several outlets, including Yahoo! Finance, MSN Money, the Nasdaq, Barchart, The Globe and Mail, and U.S. News & World Report. He also has made guest appearances on Fox Business and Money Radio, among other shows and podcasts, and he has been quoted in several outlets, including MarketWatch, Vice, and Univision.

He is a proud graduate of The Ohio State University, where he earned a BA in journalism … but he doesn’t necessarily care whether you use the “The.”

Check out what he thinks about the stock market, sports, and everything else at @KyleWoodley.