May jobs report blows past forecasts as labor market heats up

The U.S. labor market continues to simmer as the economy added significantly more jobs than expected in May, furthering the view that the Federal Reserve will wait until at least September to cut interest rates.

Employment data also showed the jobless rate inching slightly higher to 4% from 3.9% in April, breaching a 27-month stretch of holding below that threshold. 

Nonfarm payrolls rose by 272,000 jobs last month, exceeding forecasts of 180,000. Downward revisions had 15,000 fewer jobs than previously reported in March and April combined. 

Stocks opened lower in the wake of the data, which had helped to allay Wall Street worries that the economy was headed down a dark path, but also pushing back the timing of an interest rate cut by the Fed.

In welcome news for workers but likely adding to hesitation by the central bank, the May report showed hourly wages rising a robust 14 cents, or 0.4%, to $34.91, up 4.1% over the past 12 months. 

“Current wage gains are outpacing the recent rate of inflation, helping individuals and households to recover some of their lost buying power,” Mark Hamrick, senior economic analyst at Bankrate, said in a note. 

Kathy Bostjancic, chief economist for Nationwide, noted that the strong job growth in May contrasts with other signals the economy is revving down. Still, she thinks the hiring spurt last month, coupled with the pickup in wages, could keep a rate cut on hold as the Fed waits for clear evidence that the economy is slowing enough to further tamp down inflation. 

“We had been anticipating the start of rate cuts in September, totaling 50 [basis points] of cuts this year, but the persevering strong employment gains raises the likelihood of later rate cuts,” Bostjancic said in a report.

While exceeding forecasts, the latest jobs readout is not out of line with the narrative of an economy coming in for a “soft landing,” rather than plunging toward a recession. A number above 300,000 would raise concerns about the jobs market overheating, according to Art Hogan, chief market strategist at B. Riley Wealth.