Investors have been eagerly awaiting Federal Reserve Chair Jerome Powell to cut interest rates and stimulate the market in 2024. However, each time it seems like Powell is ready to begin this rate-cutting cycle, new data emerges that complicates the situation. The latest example of this trend was seen in Friday’s nonfarm payroll data, which showed that the U.S. economy added 272,000 jobs in May, surpassing economists’ expectations.
Many investors were hoping that the jobs report would indicate a cooling labor market, prompting the Fed to move up the timing of its rate cuts. However, the strong job numbers and wage growth reported in May did not provide the clear signal that Powell and investors were looking for. This has led to uncertainty in the market, with Fed funds futures contracts now pricing in a lower chance of an interest rate cut in September.
Julia Pollak, ZipRecruiter’s chief economist, noted that the latest jobs report delivered a mixed picture, leaving room for continued debate on the best course of action for the Fed. She emphasized that more data is needed to truly understand the state of the labor market and the economy.
One of the mixed signals in the May jobs report was the increase in the unemployment rate, which rose from 3.9% in April to 4% in May. This seemingly contradictory reading was a result of discrepancies between the establishment survey, based on a sample of businesses, and the household survey, based on a sample of households. While the establishment survey showed job growth, the household survey indicated a decline in employment.
Despite the rise in the unemployment rate, some economists like Nick Huber, Indeed’s chief economist, believe that the labor market is still on track for a soft landing. Huber pointed out that the increase in unemployment was primarily driven by younger workers, while prime-age employment actually rose in May.
Another mixed signal in the jobs report was the shift from full-time to part-time jobs, which could suggest that businesses are cutting back on labor costs as the economy slows. However, this data is known to be volatile and can fluctuate from month to month.
Overall, the mixed signals in the May jobs report are likely to keep Powell in a wait-and-see mode. While the establishment survey showed strength, the household survey remained weak, and higher wage growth was a modest surprise. This uncertainty means that Powell will likely maintain a cautious approach and continue to rely on data to guide future policy decisions.
In conclusion, the latest jobs report has added to the ongoing debate about the state of the economy and the Fed’s next steps. With conflicting signals and uncertainties in the market, investors will have to wait for more data to gain a clearer understanding of the situation. Powell and the Fed will likely remain cautious and data-dependent in their approach to monetary policy in the coming months.
