Top of the Morning: May Jobs Report takeaways
The UBS May jobs report revealed stronger-than-expected employment gains, with the economy adding 172,000 jobs, signaling resilience in the labor market. Per the full note from UBS, sectors such as leisure and government contributed significantly to the job growth, alleviating previous concerns surrounding the labor outlook. Despite the solid job numbers, wage growth slowed, suggesting persistent disinflationary pressures that could limit immediate Fed rate hikes. Overall, these dynamics place the central bank's policies in a cautious light as market participants assess subsequent inflation data due next week.
What the desk is arguing
The desk interprets the stronger-than-expected job growth from the UBS May report as a signal of labor market resilience, which may not substantially shift Fed rate hike expectations. Specifically, the addition of 172,000 jobs indicates not only robust employment but also a diverse sectoral contribution, particularly from leisure and government, accounting for over 100,000 of those gains. This assessment is crucial as it aligns with the desk’s outlook that policymakers may remain cautious given the simultaneous slowdown in wage growth.
Moreover, the positive revisions to previous months lifted the three-month moving average to around 180,000, reinforcing a trend of robust job creation. As wage growth decelerated, this indicates that inflationary pressures may not build as aggressively, thereby supporting a more dovish Fed stance moving forward, as policymakers weigh these factors against pressing inflation data expected next week.
Where it sits in our coverage
Our consensus for the USD/EUR pair targets 1.075, with a range between 1.04 and 1.12. This outlook is informed by projections from various firms, including: - jpmorgan: 1.10 (Mar-26) - bofa: 1.04 (Mar-26)
The desk's interpretation aligns more closely with jpmorgan's mid-range target, while it diverges from bofa's conservative outlook. This positions us at a slightly optimistic view compared to the general consensus in the marketplace.
How other firms see it
Firms like jpmorgan are aligned with the desk in viewing the employment data as a positive sign for economic resilience, while bofa contrasts this view, highlighting potential risks of recession in light of sluggish wage growth and broader economic uncertainties.
As traders look ahead, keep an eye on USD/EUR fluctuations as they may be influenced by upcoming inflation data, which overlaps significantly with the current labor market dynamics documented in the jobs report. The interplay between these economic indicators could offer valuable insights into Fed policy direction.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01The May jobs report showed an increase of 172,000 jobs, exceeding expectations.
- 02Wage growth continues to slow, indicating potential disinflationary trends.
- 03Strong job growth may not lead to immediate Fed interest rate hikes.
- 04Broader labor market strength could support market sentiment despite inflation concerns.
Market implications
Watch the USD/EUR pair closely, particularly the 1.075 level, as market sentiment reacts to the upcoming inflation data. Heightened focus on how the inflation read might influence Fed rate expectations will be crucial in the near-term. Positions may shift accordingly as traders reassess based on this dual labor market and inflation narrative.
Risks to this view
If the upcoming inflation data shows unexpectedly high consumer price pressures, it could prompt a shift in Fed policy outlook, undermining the positive reading from the jobs report. Additionally, any signs of slow economic growth or negative revision of previous labor data could challenge the prevailing bullish sentiment.
Hi, everyone. Dan Cassidy here. Welcome back to Top of the Morning on the UBS Market Moves podcast channel.
For today, we will check in on the health of the U.S. labor market following the release of the May jobs report just about one hour ago. Joining me here for today's conversation, glad to welcome back from the UBS Chief Investment Office, Senior U.S. Economist Andrew Dubinsky.
With that, Andrew, thank you for dropping by on this jobs Friday morning. Great to be back with you here on Top of the Morning. Yeah, yeah.
It's great to be back with you. And this report definitely was quite a bit stronger than what we were expecting and obviously what the consensus was expecting. You had job growth accelerate up to 172,000.
And you can see that there were some key contributions for a couple sectors like leisure and government explaining over 100,000 of those gains. But even stripping back some of those sectors, it was a pretty broad-based. The report had a lot of gains across many industries.
And we looked at something called the diffusion index to show that. So, broad gains, pretty large positive revisions to the prior months and that lifted the three-month moving average up to around 180,000. And that's a pretty strong trend.
And so, when you look at these numbers, it's going to definitely assuage some concerns that people coming into this report probably still have about the labor market. I think the other thing that we're looking at always very closely is wage growth. And that actually continued to slow.
So, I'd say from a policymaker's perspective, you're seeing pretty strong job growth, but you're not seeing much inflation pressures. And so, I think that's a key factor for why the case for hikes, even with the stronger job data, is not going to be strengthening and getting that much support amongst the policymakers. The other indicator that's obviously very important for policymakers is the unemployment rate on an unrounded basis.
It stayed the same, but on looking at the next few decimal points, you did actually see it declined. And the important thing about this decline is that it was driven by employment gains. So, this is, again, the household survey where they're asking people about their employment situation versus the business survey.
And what happened here is you saw that more people reported that they were employed. And sometimes the unemployment rate can go down for good reasons. In the case of more employment, sometimes it can go down for bad reasons, a lower participation rate.
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