NEW YORK (Reuters) - Employers stepped up hiring in May, a sign the economy was growing modestly but not strong enough to convince the Federal Reserve to scale back the amount of cash it is pumping into the banking system.
The United States added 175,000 jobs last month, just above the median forecast in a Reuters poll, Labor Department data showed on Friday.
The unemployment rate ticked a tenth of a percentage point higher to 7.6 percent, with the increase actually giving a relatively hopeful sign as it was driven by more workers entering the labor force.
TERRY SHEEHAN, ECONOMIC ANALYST AT STONE & MCCARTHY RESEARCH ASSOCIATES:
”We don’t think there is anything decisive in this report to change our outlook for the Fed decision. We think it’s still probable that they will start paring the asset purchase program at the July meeting, but we have more data due in the next couple of weeks, retail sales in particular.
”If the economic data comes in stronger in the coming weeks the FOMC could determine that it’s time to start paring back purchases.
“As to the overall report, we think it’s pretty much steady-as-she-goes for payroll growth. The uptick in the unemployment rate is not particularly concerning. It may be that the late survey period in May meant that some college graduates entered the labor force earlier than usual.”
”It’s definitely a decent increase in the labor market. It suggests that the FOMC could adjust the pace of its asset purchase program, but that adjustment is not imminent. I think they will wait for at least two policy meetings. I expect no action in the coming meeting this month, mainly because fiscal policy is likely to restrain growth and because policymakers want to make certain that improvement in the labor market continues even though job gains have averaged - over the last 12 months - over 170,000 per month. Despite this, there is plenty of slack in the labor market. The unemployment rate is high and the U6 rate is high.
“The Fed’s asset purchase program will remain intact; it’s just that the pace of purchases may slow if the labor market continues to show decent progress. But it won’t happen at the next two meetings.”
TIM GHRISKEY, CHIEF INVESTMENT OFFICER OF SOLARIS GROUP IN BEDFORD HILLS, NEW YORK:
”The non-farm private payrolls were basically in line and I think that is actually exactly where the market is hoping they would be. Too strong a number would have raised fears that the Fed would cut back on its bond buying programs and that would have weakened the financial markets, and a weaker number would have raised concerns about deflation and a weak economy and hurt the financial markets.
“Over the last week or two we have been in a market where both good economic news and weak economic news have been greeted negatively. The production of an in-line number here is actually what I think the market currently prefers… It keeps the Fed on an even keel.”
DARRELL CRONK, REGIONAL CHIEF INVESTMENT OFFICER FOR WELLS FARGO PRIVATE BANK IN NEW YORK:
”It was actually kind of an uneventful number basically, in my opinion. The Fed was getting almost exactly what they hoped for in this number, which is solid employment growth, nothing over the top but certainly nothing disappointing here either. I didn’t like to see the slight revisions down in April’s numbers. So that was a little bit of a disappointment. The unemployment rate ticking up from 7.5 to 7.6 percent but that was really a function of the labor force participation rate moving up. You can slice that both ways, the argument is you are getting more people back into the labor force which is functionally a good thing for the economy even though it means a temporary tick up in the unemployment rate.
“The futures certainly have reacted nicely, it fell right in this middle ground where the markets can become full with it, there were no surprises either way. There wasn’t a shock on the upside and there certainly wasn’t a shock to the downside.”
”The bond market is down because it realizes this is the kind of number where the Fed might be inching closer to tapering than not. It’s not a gang-busters, barn-burning, the economy-is-soaring kind of number, but it shows people re-entering the workforce. It shows manufacturing hours up 0.1 percent which is positive. The percentage of firms looking to hire inched up last month as well.
”We’re still not getting the job growth in those high income levels that we’d like to see. We’re seeing growth in temp jobs as opposed to higher income jobs. It’s not great, but it’s good. It leaves the tapering talk is still on the table.
GARY THAYER, CHIEF MACRO STRATEGIST, WELLS FARGO ADVISORS, ST. LOUIS, MISSOURI:
”We look at these as good numbers. Respectable job growth shows the economy expanding at a moderate pace. Nothing in this report suggests the Fed should change policy. We expect the Fed to continue quantitative easing. The unemployment rate is still high. We’d be more concerned about the Fed tapering if the unemployment rate was getting down toward 7 percent.
RICK MECKLER, PRESIDENT, LIBERTYVIEW CAPITAL MANAGEMENT LLC, JERSEY CITY, NEW JERSEY.
”What’s made a good number is the fact that it’s not extreme on either side, and gives the prospect that investors are looking for, which is a continued slow recovery without any likelihood of any rapid rate rise by the federal government.
”This kind of Goldilocks recovery is what people are looking for.
”Particularly when you consider the fact the sequester has probably cost some government jobs. So it seem to be able to make the transition through the sequester without the highly negative effects to the economy that were predicted.
”At least for now, it’s more of the same. A slow steady recovery. Ultimately, of course, a quicker recovery would be good for the public but it would lead to some concern about rapidly rising interest rates and have maybe a short-term effect on stocks.
“So for an investor point of view this is the best of all worlds. From a worker point of view, of course, you’d like to see a more robust recovery.”
IAN LYNGEN, SENIOR GOVERNMENT BOND STRATEGIST, CRT CAPITAL GROUP, STAMFORD, CONNECTICUT:
”The labor market participation did increase a tenth of a percent, and while the unemployment rate increased one tenth on a rounded basis, on an unrounded basis it was a very, very small gain. ...
“That said, I don’t think that this report is strong enough to cause the Fed to consider tapering QE anytime before the September meeting. It certainly reduced the risk over the next couple meetings that we see any changes from the Fed. At the same time it’s constructive enough to support the notion that bond buying should be curtailed as we go into the late third, early fourth quarter.”
JACOB OUBINA, SENIOR U.S. ECONOMIST, RBC CAPITAL MARKETS, NEW YORK:
“This was a pretty neutral number. The downward revisions, however, gives it a slightly weaker tone. The main takeaway is the wage component, which was flat on the month. Basically wages are a wash between April and May. Given the strong reliance on wages in this cycle that is one form of ammunition for consumers that should drive spending.”
“I do not think this means anything for Fed policy. It puts tapering on the shelf for a little while. The payrolls number was far off their target. However, this also does not suggest they will ramp of stimulus either.”
“It’s not a big surprise. We were right about private payrolls, we did see weakness in manufacturing and after the manufacturing ISM decline. That’s unfortunately reflecting weakness in the global markets, in the global economy. Services sector, you need to look at the composition of jobs in the services sector and it’s really not highly paid jobs that are growing, it’s a lot of jobs in tourism, it’s a lot of jobs in low paid sectors, and that’s really not boding well for consumer purchasing power.”
MICHAEL WOOLFOLK, SENIOR CURRENCY STRATEGIST, BNY MELLON, NEW YORK:
“What was really key for us was the household survey, which was up 319,000. It’s a better-than-expected report, if just barely so. I think the markets will view this favorably. There is still a lot of uncertainty about the direction of interest rates, though, and this will be a volatile summer. The debate about tapering will not be resolved by Labor Day.”
IRA JERSEY, INTEREST RATE STRATEGIST, CREDIT SUISSE, NEW YORK:
”Not bad numbers overall, the confusing part for the market to digest initially was the unemployment rate going up a little bit but it went up for the right reason, the labor force expanded by the most in a long time.
“You also had aggregate incomes that are a little bit better with revisions. I’d expect the (Treasuries) market not the move a whole lot, although we think that we will probably over time leak a little bit higher in yield.”
STOCKS: U.S. stock index futures added to gains
BONDS: U.S. bond prices added to losses
FOREX: The dollar trimmed losses versus the yen and the euro
U.S. nonfarm payrolls: U.S. payrolls grew by 175,000 in May. link.reuters.com/ram54t
U.S. unemployment: The jobless rate rose to 7.6 percent in May. The percentage of unemployed who have been out of work 27 weeks or longer edged down to 37.3 percent, the average unemployment duration rose to 36.9 weeks. link.reuters.com/wam54t
Americas Economics and Markets Desk; +1-646 223-6300