LIVE MARKETS-Settling for "so-so" over disastrous: A jobs report deep-dive

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SETTLING FOR "SO-SO" OVER DISASTROUS: A JOBS REPORT DEEP-DIVE

Wrapping up a week marked by trade talks and Washington slap fights, the Labor Department delivered a fairly benign employment report.

And the stock market, fearing the worst, ate it up.

The U.S. economy added 139,000 jobs in May USNFAR=ECI, or 5.4% fewer than April's downwardly revised 147,000 gain but 9,000 more than analysts expected.

This marks the fifth upside surprise in the past 12 months, and the ninth reading below the 200,000 mark over the past year.

"This is a sigh of relief report; people were really worried that this was going to be a kind of start of a downturn in the labor market and therefore start the downturn in the economy and we've got a sort of a bit of a reprieve, at least for a month," Scott Ladner, chief investment officer at Horizon Investments tells Reuters.

Digging beneath the headline, goods producing, manufacturing and retail sectors shed a combined 19,500 jobs, while services employment rose by 145,000. That means, cutting through the noise, the services sector was responsible for every one of the 140,000 private sector job adds.

The report also gave markets their first glimpse at May inflation, showing average hourly wages rose by 0.4% on a monthly basis, double April's 0.2% rate and hotter than the 0.3% consensus.

Year-on-year, wages increased 3.9%, a repeat of April's upwardly revised figure and 0.2 percentage points hotter than economists predicted.

"The rise in hourly wages by 0.4%, I don't want to say it's significant, but it's noticeable," said Peter Cardillo, chief market economist at Spartan Capital Securities. "And so that just means that the Fed stays on hold" with respect to near-term interest rate cuts."

As anticipated, the jobless rate USUNR=ECI held firm 4.2%, while at the same time the labor market participation rate deteriorated, falling 20 basis points to 62.4%, revisiting February's two-year low.

When more Americans leave the labor pool they are no longer considered part of the workforce and are not counted among the unemployed. So a dip in participation rate should correspond with a dip in unemployment.

That didn't happen.

"While the unemployment rate was steady on the month, this was because of a big drop in labor force participation," writes Bill Adams, chief economist at Comerica Bank. "If the labor force had held steady from April, the unemployment rate would have jumped to 4.6%, not held steady at 4.2%."

The average unemployment duration fell for the first month in three, dipping to 22.6 weeks from last month to 24.9 weeks, which was the longest average since April 2022.

A pullback in the amount of time it takes laid off workers to find new gigs could help reverse souring labor market confidence:

Finally, breaking down joblessness by race and ethnicity, unemployment among White Americans held steady at 3.8%, while Black and Hispanic joblessness ticked lower, to 6.0% and 5.1%, respectively, resulting in a narrowing of the White/Black unemployment gap to 2.2 percentage points from 2.5.

(Stephen Culp)

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