NEW YORK (Reuters) - The number of new U.S. jobs climbed by an unexpectedly brisk 157,000 in May on a surge of hiring in service businesses while hiring in the factory sector continued to decline, Labor Department data showed on Friday.
U.S. incomes fell surprisingly by 0.1 percent in April, the first drop in almost two years, but core consumer prices - a key measure of inflation - inched up a less-than-expected 0.1 percent, a Commerce Department report showed on Friday.
”Bond prices first went down on the stronger-than-expected headline payroll number, then improved on the subdued April PCE price index. Then the two-year yield reached a technical support level. It will be hard for the market to do much worse today given that the technicals are supportive.
”But the market also sees that a 3 percent growth rate is within the grasp of the economy in the second quarter and that is certainly bad for bonds.
“The employment report was relatively strong, a little stronger than expectations. You also got a small increase in the workweek which is very important.”
MICHAEL METZ, CHIEF INVESTMENT STRATEGIST, OPPENHEIMER &
”It was no surprise -- almost all the aspects of it, job growth, personal income and wages, everything consistent with continue growth and no great surge in inflationary pressures. On balance, it was pretty good news.
”With inventory build-up starting up imminently, you’ll see some turnaround in manufacturing. I think the real key to the second half is rising exports, and the indications we have from overseas is stronger consumption patterns in Germany and emerging in Japan. this I think will be an important swing factor in the second half.
(Good for stocks?) Yes it is. The bond market took it with complete indifference. In my opinion interest rates are not a problem here. I don’t think we have to see a cut by the Fed to improve the economic outlook... It’s a very hospitable environment for equities and remains so.”
”The employment report doesn’t live up to the bond market’s
worst fears and given the core PCE reading the uptick in bond prices is not overly surprising.”
“Bonds were all focused on the payrolls report which makes a lot of sense, but we can’t dismiss core PCE either. The market was so beared up going into this report, the bar (for payrolls) was set very high. The jobs report continues to show a solid employment setting but it didn’t meet that bar.”
“The fact you get exactly 2 percent on the core PCE means that we are at the upper end of the Fed’s 1 to 2 percent range.”
ALAN RUSKIN, CHIEF INTERNATIONAL STRATEGIST, RBS GREENWICH
“It’s not far from market expectations after the revisions. The breakdown is generally healthy, employment is strong and construction is decent enough too ... I think it’s all consistent with the idea that the downside risks on the economy are abating and it continues to undercut expectations for rate cuts this year and early next year.”
“The payroll report was positive, it was above expectations, but it shouldn’t be too much of a surprise given jobless claims. This is consistent with data that shows the economy is firming as well as with the behavior of financial markets.”
“Bonds probably should sell of to some degree. If we see growth back to trend or above trend, all the expectations for rate cuts will be eliminated. Bond yields have no where to go but up with an economy growing at an above trend rate and the Fed unlikely to lower rates anytime soon.”
“It should be a positive for stocks. You need a strong employment situation to sustain income growth and spending. To the extent that there was fear the economy was continuing to lost steam, this cuts against that idea.”
“The good inflation numbers are outweighing the higher employment numbers, buying coming in.”
“Nothing too dramatic. April was a bit weaker than trend because of poor weather and May was a bit above that when things got better. One area particularly noticeable was hospitality and that’s very weather-sensitive. The labor market still looks relatively healthy and stable. These numbers keep the Fed on hold, they’re not strong enough to make them think about tightening.”
“Obviously a very strong number with really the only weakness coming from goods producing but construction was still flat so we did not see the drop expected and services were very, very strong. There is still obvious tightness in the labor market with average hourly earnings coming a little higher. Overall very strong reports and in terms of the PCE number, inflation looks a little more moderate but spending is very strong. We will see some dollar strength today but as we move to next week revert back to consolidation with a tight bias for U.S. dollar strength.”