(Reuters) - U.S. job growth slowed in May and employment gains in the prior two months were not as strong as previously reported, suggesting the labor market was losing momentum despite the unemployment rate falling to a 16-year low of 4.3 percent.
Nonfarm payrolls increased 138,000 last month as the manufacturing, government and retail sectors lost jobs, the Labor Department said on Friday.
OMER ESINER, CHIEF MARKET ANALYST, COMMONWEALTH FOREIGN EXCHANGE, WASHINGTON
“It’s definitely negative for the dollar in the near term. The market is clearly disappointed by the number. As for the Fed, it means a lot less than what the market sees. Hiring for the last couple months have shifted to a lower gear. That’s consistent with a labor market near full employment.
“What is surprising is the lack of wage growth so that is disappointing. The market reaction with the dollar and Treasury yields is consistent with this number. We will probably see this trend continuing into the upcoming FOMC meeting. But the Fed is not going to read too much into this one report. The outlook for a June rate hike remains positive. Fed funds futures are still pricing in about a 90 percent of a June hike. What happens after June is less clear. If we are going to see slower hiring, little wage growth and no meaningful rebound in economic growth from the first quarter, that will raise the question whether there is a need to raise rates further.
“The Fed is still on track for balance sheet balance normalization later this year. This number won’t influence that outlook yet. The Fed will look more for the initial market reaction on the tapering of the balance sheet and the market digesting its plan. The data are not slow enough to derail the Fed’s plan to taper its balance sheet reinvestment.”
SAMEER SAMANA, GLOBAL QUANTITATIVE ANALYST AT WELLS FARGO INVESTMENT INSTITUTE IN ST. LOUIS
“It’s not really an outlier just a little bit disappointing based on consensus expectations which were maybe a little bit high.”
“Wages are continuing to moderate in the 2.5 percentage range which is a good thing for financial markets”
“Almost all the numbers when compared to the six and twelve month moving averages, are very much in line with continued improvement in the economy and the labor market. It continues the not too hot, not too cold situation where you’ve got a solid economic footing and corporate profits that are still growing.”
“If futures sell off on this we’d use it as a opportunity to add to equities. There’s nothing in this report that would make us less positive on equities.”
“There shouldn’t be anything in this report that’s equity negative. Equities at this point would be most spooked by higher wages, higher interest rates, a more aggressive Fed. This should give them some confidence they’re not behind the curve.”
“It anything it makes the valuation less problematic for equities because yields are coming down.”
KATE WARNE, INVESTMENT STRATEGIST AT EDWARD JONES IN ST. LOUIS
“The message is that while job growth is less than expected we’ve continued to see modest job growth, modest economic growth this year. This is just one more sign that we are not seeing the pickup everybody hoped for as we entered 2017 but we’ve seen other signs that growth wasn’t accelerating. At the same time this report is certainly consistent with an economy that continues to grow at the 2-2.5 percent rate we’ve experienced during this entire expansion. While disappointing, investors have been lowering their expectations for the last few months. As a result this is not as big a surprise as it might otherwise seem.
“The Fed is going to continue to view this as we are seeing this very slow halting recovery. While the pace is a little less than hoped, they still believe that wages are growing and that another quarter point increase in rates would make sense in an environment where it’s not as fast as we thought, but consistent with continued economic growth.”
RUSSELL PRICE, SENIOR ECONOMIST, AMERIPRISE FINANCIAL SERVICES INC, TROY, MICHIGAN
“It’s certainly surprising. It doesn’t really correlate well with virtually all the other data on the labor market that we’re seeing.
“Overall we still think that the job market is quite healthy, and although we still expect the pace of job growth on monthly basis to decelerate as few people are still on the sidelines. This month’s data is likely below the real trend.
“Generally speaking the labor market remains healthy, and even with today’s report, it’s still well ahead of what we need to generate, as far as job growth, just to keep with demographics.”
TOM PORCELLI, CHIEF U.S. ECONOMIST, RBC CAPITAL MARKETS, NEW YORK
“What people have to ask themselves is what matters more to the Fed at this point, what happens from a job gains perspective and what happens from a resource utilization measure perspective. The latter, of course, is the unemployment and underemployment rate. These are the things that at this point in the cycle are going to matter more to the Fed, and they both improved. 138,000 (jobs) is light relative to the market expectations, but ask, is it light relative to the Fed expectations, and the reality there is it’s not. Most Fed officials have continued to talk about 100-150 thousand jobs as being their bogey, so this number falls right in that.”
“This number is not the kind of report that derails the Fed from raising rates in June, in fact I think this emboldens them to continue the process because you had the resource utilization measures improve, i.e. the unemployment rate and the underemployment rate. That’s what matters to the Fed at this point, it’s about resource slack. We’re in a mature phase of the cycle, job growth is going to slow down. The Fed has been talking about this for over a year at this point and they are braced for that reality. It’s all about resource utilization measures and they continue to move in the right direction.”
STOCKS: S&P e-mini futures ESc1 trimmed gains, were last trading up 0.1 percent.
BONDS: U.S. Treasury yields extend fall, U.S. 10-Year Treasury yield US10YT=RR breaks below 2.20 pct
FOREX: The dollar index .DXY falls, the dollar drops to 7-month low vs Euro and Swiss Franc.
Americas Economics and Markets Desk; +1-646 223-6300