Nomura US Economic Weekly: Hire for Longer
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Nomura's latest US Economic Weekly introduces the "hire for longer" thesis, arguing that American companies are extending existing employee tenure rather than expanding new hiring amid structural labor market shifts. May non-farm payrolls rose by 185,000, below the consensus estimate of 220,000, while the unemployment rate held steady at a low 3.6%. Average hourly earnings increased 0.3% month-over-month and 4.1% year-over-year, indicating persistent wage inflation. The labor force participation rate ticked down to 62.3%, suggesting some workers are exiting the workforce.
Leisure and hospitality led job creation, adding 52,000 positions, followed by healthcare with 48,000. Conversely, manufacturing employment fell by 3,000 for a second consecutive month, and temporary help services dropped by 5,000, typically signaling future hiring deceleration. Long-term unemployment rose to 1.2 million, representing 20.5% of total joblessness.
Nomura expects the Federal Reserve to maintain interest rates at the upcoming June meeting, retaining a hawkish bias. Should inflation data remain persistently high, the probability of a July rate hike increases. While a significant labor market slowdown could prompt earlier rate cuts, Nomura currently views this probability as low. The underlying dynamic reveals an economy where businesses cautiously retain staff over recruiting new talent.