The US economy keeps adding new jobs, although the number missed expectations. The unemployment rate fell to 5.8%, an encouraging sign for a recovering economy.
Financial markets are still digesting the Non-Farm Payrolls (NFP) data released last Friday. The United States economy created 559k jobs in May – another step in the right direction, pointing to a strong economic recovery from the COVID-19 recession.
But the market participants expected more from the report. More precisely, the market participants predicted the US economy to create 645k new jobs in May. The disappointment was quickly seen in the currency market as the US dollar fell across the board.
This is notable because the dollar traded with a bid tone in the two days prior to the NFP release. Both the EUR/USD and the AUD/USD exchange rates, closely monitored when it comes to the US dollar’s strength, fell to their weekly lows prior to the release. Nevertheless, the NFP triggered renewed US dollar weakness, despite the fact that the jobs report was not as disappointing as it first appeared.
US Labour Market Continues Recovery
The report did miss the forecast, albeit by a small margin. However, some net positives compensated for the negative headline.
Firstly, the Unemployment Rate indicator declined to 5.8% from 6.1% in the previous month against 5.9% expected. While still above pre-pandemic levels, the improvement is notable and should not be ignored, especially considering the fact that the unemployment rate is a benchmark for the Fed’s job creation mandate.
Secondly, the previous month’s jobs number was revised higher – not by much, but still. It was revised up by 12k, not enough to matter for May’s report, but not small enough to ignore.
Finally, it becomes clear that the US economy is able to create jobs, but businesses are having a hard time filling them. For that, they have to pay more, and the AHE or the Average Hourly Earnings confirmed this. The AHE increased 0.5% on the month, more than double the 0.2% expectations.
Leisure and hospitality, public and private education, as well as health care and social assistance sectors were responsible for most of the monthly growth in jobs. On the flip side, the unemployment rate and the number of unemployed persons remain well above their pre-pandemic levels.
Are they still low enough to warrant the Fed’s ongoing accommodative measures? We will find out the answer to this question in about a week from now when the June Fed’s meeting is due.