Uneven jobs report ahead of Fed meeting

For most of the week, generally mixed-to-softer economic data took a bit of the steam out of the markets. Two manufacturing surveys were somewhat offsetting, with one stronger and the other weaker, but both wrapped around the neutral point. The ISM services index was stronger than expected, reflecting an increase in employment and cooling in price pressures. And the weekly jobless claims tally increased from 221,000 to 229,000, still very low, but well above the 2024 low of 195,000.

The market’s focus was clearly on the monthly payroll report, released on Friday morning. Expectations of 180,000 jobs added were left in the dust, as the economy added 272,000 new jobs in May. Digging into the data paints a more nuanced picture, however: the previous two months had 15,000 jobs revised away; the unemployment rate rose from 3.9% to 4.0%; and labor force participation fell from 62.7% to 62.5%. But average hourly earnings rose 0.4%, above market expectations and April’s 0.2% gain. Added together, the market lowered its expectations for Federal Reserve rate cuts this year. It seems likely policymakers will glean from this report that they can bide their time before starting to cut rates.

Coming up are several inflation readings, a new consumer confidence survey, and the Federal Open Market Committee meeting, with focus on its updated economic projections. Markets will have a lot to digest as they ease into summer.