UBS: Solid May US Employment Report

UBS assesses the May US employment report as broadly solid, with nonfarm payrolls rising by 172,000, exceeding both the UBS forecast of 95,000 and the market consensus of 85,000. Private sector employment increased by 120,000, while government jobs rose by 52,000, driven significantly by local government excluding education. However, UBS cautions that initial May payroll prints have often been subject to subsequent downward revisions over recent years, averaging roughly 60,000 over the past four years. Furthermore, some private sector strength may reflect Memorial Day timing effects and early hiring in leisure and hospitality, potentially pulling forward June gains.

Despite these seasonal adjustment nuances, the underlying data suggests the labor market is not deteriorating rapidly. Over the past eight months, payrolls have averaged 57,000 monthly, with private employment averaging 88,000 over the last four. Average hourly earnings increased 0.29% month-over-month, indicating a continued but gradual deceleration in wage growth. The household survey showed rising employment, a slight dip in unemployment, and a stable participation rate, while aggregate hours held at 34.3. The diffusion index remained above 50. Overall, the labor market appears to be transitioning from slack to a sideways trajectory, diminishing near-term pressure on monetary policy to cut rates. The Federal Reserve will likely maintain patience while monitoring upcoming inflation data and subsequent payroll revisions.

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