Home Central Banks Disappointing Non-Farm Payrolls Pressure Fed to Cut Rates

Disappointing Non-Farm Payrolls Pressure Fed to Cut Rates

Stockholm (Ekonamik) – According to the US Bureau of Labor Statistics (BLS), US non-farm payrolls increased by a meek 75,000 workers in May, while unemployment remained stable at 3.6% for the third consecutive month, its lowest level since 1969.

The figures were extremely disappointing given already subdued expectations the figure would only fall to 180,000, following a buoyant performance that saw the USA economy add 263,000 new jobs in April.

“Monthly job gains have averaged 164,000 in 2019, compared with an average gain of 223,000 per month in 2018. In May, employment continued to trend up in professional and business services and in health care,” according to the BLS. “Employment in professional and business services continued to trend up over the month (+33,000) and has increased by 498,000 over the past 12 months. Employment in health care continued its upward trend in May (+16,000). The industry has added 391,000 jobs over the past 12 months. Construction employment changed little in May (+4,000), following an increase of 30,000 in April. The industry has added 215,000 jobs over the past 12 months. Employment showed little change in May in other major industries, including mining, manufacturing, wholesale trade, retail trade, transportation and warehousing, information, financial activities, leisure and hospitality, and government.”

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Reacting to the data release, Sal Guatieri, Senior Economist at BMO Capital Markets, commented that “American companies nearly hit the hiring brakes in May as trade tensions heated up.” According to the economist, “the trend in hiring is clearly slowing. Retailers continue to cut staff, probably more due to online competition than softer consumer spending. Factories, which are on the front lines of the trade war and have cut production this year, are hiring only modestly. Governments cut staff by 15k in May, so the private sector figure was a little better than the headline (90k)”. The implications for monetary policy are clear. “If this is the start of a new worrisome trend, the Fed will take action,” he warns.

“Today’s numbers – together with the weak ISM manufacturing earlier this week – will add to the pressure on the Fed to deliver the first cycle cut in a not too distant future. Already before today’s numbers, markets were putting close to a two-thirds probability of a rate cut by July,” noted in Sweden, Anders Svendsen and Kjetil Olsen, Chief Analyst and Chief Economist at Nordea Markets, respectively. “The Fed has had no problem cutting rates with trend payrolls at these levels in the past. If the first rate cut is delivered in September as markets are currently pricing and payrolls trend lower from here it all looks like business cycle as usual.”

Photo courtesy of Department of Labor|Shawn T Moore

Filipe Wallin Albuquerque
Filipe Wallin Albuquerque
Filipe is an economist with 8 years of experience in macroeconomic and financial analysis for the Economist Intelligence Unit, the UN World Institute for Development Economic Research, the Stockholm School of Economics and the School of Oriental and African Studies. Filipe holds a MSc in European Political Economy from the LSE and a MSc in Economics from the University of London, where he currently is a PhD candidate.

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