Jobs report: Hiring strong, but workweek short after Covid lockdown; S&P 500 gains

The May jobs report showed that hiring remained strong as employers added 339,000 payroll positions. However, unemployment rose, working hours fell, and wage growth moderated. The S&P 500 continued its gains in stock market action on Friday, following Thursday’s nine-month high on the latest boost in confidence from the Federal Reserve.


Jobs report successes and failures

The job gains easily topped Wall Street’s forecast of 190,000. The private sector added 283,000 positions, beating estimates of 165,000. Meanwhile, government employment increased by 56,000.

Average hourly wages rose 0.3% on the month, according to forecasts. Annual wage growth of 4.3% came amid downward revisions to April wage growth, below forecasts of 4.4%.

However, the average working week fell to 34.3 hours, the shortest since April 2020, during the Covid lockdown. Even with the large increase in private sector employment, the fall in the workweek meant that total hours worked across the economy fell 0.1% in May.

In fact, Labor Department data showed that working hours were negative across the economy over the past three months.

With many new workers working even fewer hours, Ian Shepherdson, chief economist at Pantheon Macroeconomics, asked in his jobs report note, “What are all these people doing?”

The unemployment rate rose to 3.7% from 3.4%. Wall Street had expected a slight rise to 3.5%.

Firm hiring gains in March and April were revised down by a combined 93,000 jobs.

The headline employment and wage statistics come from the Labor Department’s monthly survey of employers. A separate household survey describes labor force participation, employment status, and the unemployment rate.

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Household survey data showed that the number of people in work fell by 310,000 and the number of unemployed rose by 440,000 as 130,000 people joined the labor force. The labor force participation rate, a measure of those working or actively looking for work as a share of the population 16 and over, was 62.6%.

S&P 500 reaction

The S&P 500 rose 0.8% after the jobs report. The Fed’s signal of a pause in rate hikes may have investors feeling the S&P 500 has room to continue its rally.

A rise in the unemployment rate and somewhat slower wage growth may keep some pressure off the central bank.

On Thursday, the S&P 500 rose 1% to 4221, its highest level since Aug. 19.

By Thursday’s close, the S&P 500 had rallied 18% from its Oct. 12 bear-market low, but the Jan. 3, 2022 is 12% below its all-time close.

S&P 500 stock valuations have been supported by easing Treasury yields, with the 10-year yield down 20 basis points over the past four sessions. After the jobs report, the 10-year yield rose five basis points to 3.66%.

However, resolution of the debt ceiling fight could tip the economy toward a brush with recession and put renewed pressure on stocks.

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More jobs report details

Leisure and hospitality sector employment increased by 48,000. Private education and health services jobs increased by 97,000.

Construction jobs rose by 25,000. Temporary help services added 7,700 jobs after cutting 10,000 jobs in the previous two months.

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Soft spots include manufacturing, which shed 2,000 jobs, and information industries, which shed 9,000 jobs.

Adjustments for the birth of new firms and the death of old ones added 231,000 jobs to the non-seasonally adjusted total, with 254,000 in May 2022 and 239,000 in May 2021. It is not known whether that assumption is on target at a time. Credit has tightened and the economic outlook has become uncertain.

Central Bank Policy Implications of Employment Report

Markets were pricing in strong prospects for a rate hike until odds reversed on Wednesday afternoon. The catalyst at the June 13-14 meeting was a clarion call by Philadelphia Fed President Patrick Harker, considered a centrist, to “avoid” a rate hike by the central bank.

After the jobs report, markets were up just 31.5%. Chances of a June hike. But markets will see a 65% rally during the July 25-26 session.

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