The jobs report will ‘lead to continued controversy,’ leaving Jerome Powell in wait-and-see mode and dashing investors’ hopes for imminent rate cuts

Friday’s non-farm payroll data was the latest example of this frustrating trend. Many investors hoped the jobs numbers would show that the labor market is cooling, enabling the Fed to move up the timing of its rate cuts.

Instead, the Bureau of Labor Statistics reported Friday that the U.S. economy added 272,000 jobs in May, topping economists’ consensus forecast for 190,000. Wage growth also came in ahead of expectations. Average hourly earnings rose 0.4% month over month, and 4.1% from a year ago, in May. 

Julia Pollak, ZipRecruiter’s chief economist, told Fortune that while this report was largely good news for consumers, it wasn’t exactly what Powell was looking for.

“I think the Fed and the investor class had all been hoping for sort of an unambiguous signal of labor market cooling—declining wage growth, declining job growth, etc.—everyone wants a really clear signal that interest rate cuts are appropriate in July or September, because high interest rates are holding back a lot of activity. They put a lot of investments on ice,” she explained. “This report did not deliver that.”

To Pollak’s point, before the jobs report, Fed Funds futures contracts were pricing in a 70% chance of an interest rate cut in September, but now that’s dropped to roughly 50%, according to CME Group’s FedWatch Tool.

There were some mixed signals under the surface, however, that could foreshadow the labor market slowing that Powell has been looking for. But many of these signs of potential labor market weakness also come with caveats. 

That’s why, for Pollak, the latest jobs report “delivers a kind of hazy, mixed picture, and that’ll lead to continued controversy about what the best course of action is for the Fed.”

“The main takeaway is that it’s complicated,” she said. “And we’re all going to have to wait for more data to figure out what’s really going on.”

Mixed signals will leave Powell in wait-and-see mode

The unemployment rate is the perfect example of the mixed signals in May’s jobs report. It ticked up from 3.9% in April to 4% last month, even as the economy added 272,000 jobs. 

This seemingly counterintuitive reading is the result of the way the Bureau of Labor Statistics creates jobs reports, producing two separate data sets. 

The first data set comes from the establishment survey, which is based on a sample of 666,000 businesses nationwide. This is where the 272,000 new jobs number came from, and it is the survey most economists emphasize. 

But there’s also a second data set called the household survey, which is based on a sample of 60,000 U.S. households across the country. According to that survey, the unemployment rate ticked up slightly in May due to a 408,000-person decline in employment that overshadowed a 250,000-person decline in the total labor force.

Thomas Simons, Jefferies’ senior economist, noted that discrepancies between the establishment and household surveys are not unusual. But he also warned in a Friday note that there is no silver lining to the increase in the unemployment rate in May. 

Capital Economics’ chief U.S. economist Paul Ashworth echoed those comments in his own note to clients Friday, warning that the rise in unemployment was for “all the wrong reasons.”  

“That slump in the household survey measure will embolden the bears, who have been highlighting the growing gap with payroll employment,” he wrote.

Still, if you ask Nick Huber, Indeed’s chief economist, the slight uptick in the unemployment rate isn’t a concern for now. “The labor market is still gliding toward a soft landing. The rise in unemployment can almost entirely be chalked up to workers 24 and under, while prime-age employment rose,” he told Fortune via email Friday.

To Huber’s point, the share of 15-24 year olds working dropped 3 percentage points from a year ago in May. But for workers aged 25 to 54, known as prime-age workers, the workforce participation rate actually rose to a 22-year high of 83.6% last month.

The slight rise in the unemployment rate wasn’t the only mixed signal that caught the eye of many investors in the May jobs report.

The household survey showed the economy lost 625,000 full-time jobs in May and added 286,000 part-time workers, which can signal that businesses are cutting back on labor costs as the economy slows. However, this data is known to be volatile. Last month for example, the number of full-time jobs rose by 949,000, while part-time jobs fell by 914,000.

“Taken in the round, today’s payrolls report raises more questions than answers and has displayed some volatile moves in most key areas,” David Page, head of macroeconomic research at AXA IM, told Fortune via email.

He noted that the establishment survey was stronger than expected, while the “inherently more volatile” household survey remains weak and higher wage growth was a modest surprise. When it comes to June’s Federal Open Market Committee (FOMC) meeting, these mixed signals mean Powell will likely stick to his old script.

“We do not think this will have a major impact on next week’s FOMC meeting, but if anything it will urge more patience before easing policy, serving more to keep the FOMC in an uncommitted, ‘data dependent’ mode,” Page said.