- June 6, 2023
-- Last week closed the market's books on May and opened the curtain on the latest reading on the jobs market. The former was benign, with the S&P 500 rising a modest 0.4% on the month1
. The latter, however, exhibited more movement, with the underpinnings of the labor market beginning to reveal a more mixed picture, including some signs of softening.
Context is important here, as the labor market is still in very healthy shape with unemployment only slightly up from this year's low of 3.4%, a rate you'd have to go back to 1953 to beat1,2
. But Friday's release of the May employment figures signals to us that the jobs market will become a slightly softer wind at the economy's back as we advance. Here are three takeaways from the latest employment data:
- The labor market's best days are behind it – May's payroll report shows that we're far from putting this stellar jobs market out to pasture, but we think the extreme tightness in employment conditions is set to loosen over the remainder of this year.
Wage pain is the Fed's gain – A softening in the labor market does have a silver lining, in that slower wage growth will be a key driver of further declines in inflation over the remainder of the year. This in turn adds support to an approaching conclusion to the Fed's rate-hiking campaign, which has been a sturdy headwind to the financial markets since the beginning of 2022.
- 339,000 new payrolls were added in May, nearly double consensus expectations and up from the prior month1. This was the best month of hiring since January's 472,000 gain and a slight reacceleration over the last several months, even in the face of a slowing economic backdrop.
The consumer still has gas in the tank – While the broader economy is slowing, someone forgot to tell the consumer. Household spending has remained robust this year despite weakness elsewhere, something we attribute squarely to the strength of the labor market. While we expect that strength to fade somewhat over the balance of the year, we think consumers remain well positioned to weather a slowdown with fewer bruises than a traditional recession. Source: 1. Factset 2. Edward Jones
- Workers have held the upper hand for the past few years as tight labor conditions have driven above-average wage growth. Average hourly earnings have risen at a year-over-year rate of 4.9% in the last 24 months, compared with 2.7% over the previous 10 years1.