US stocks rallied after a disappointing jobs report affirmed the Fed’s dovish stance since the economy is nowhere near close to showing substantial progress in the labor market.
Today’s nonfarm payroll report confirms the belief that the US economy is a long way from recovering all the jobs lost during COVID-19. Before the April report, expectations were high that the economy would have a handful of months posting one million jobs created, with the US recovering the majority of the remaining 8 million job deficit by the end of the year. The May nonfarm payroll report showed that the economy is still far from showing substantial progress with the labor market recovery.
The May jobs report showed 559,000 jobs were created, lower than the 800,000 whisper number (675,000 was the consensus estimate), while the April report was revised higher by 12,000 to 278,000 jobs. The unemployment rate improved more than expected to 5.8%, but part of that can be attributed to a drop in the participation rate.
Labor market hiring remains modest at best and this should support a complete labor market recovery for the Fed at some point between the end of 2022 and early 2023. The Fed regional surveys are showing the supply problem for employers is not getting any better and that will ultimately lead to wage pressures. Now that half of the states have signaled they will eliminate the federal unemployment benefits, expectations will be high for June’s job report to be strong.
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