Hello, I’m Greg Curvall, Senior Portfolio Manager with Fifth Third Bank.
U.S. stocks finished higher last week, with the S&P 500 making new all-time highs. On Friday, we received the May jobs report, which showed that the domestic labor market, although remaining strong, is starting to show some cracks. The yield on the 10-year Treasury was down almost 20 basis points mid-week but recovered following the jobs report to finish the week at 4.44 percent. Both WTI crude and gold were down on the week as well.
Let’s take a closer look at the jobs report. In May, the U.S. economy added 272K jobs, easily exceeding estimates for a 180K gain. However, the unemployment rate ticked up to 4 percent from 3.9 percent, the highest in two-and-a-half years, but still close to historical lows. The number of people who joined the labor force, which means they were actively looking for employment, but couldn’t find a job, jumped by the most since August 2021.
On the whole, the U.S. labor market is still healthy, just not as robust as it was just a year ago. The job openings-to-unemployed ratio has dropped to 1.2, from 1.75, from just 12 months prior. This ratio is now back to its pre-pandemic level. So is the rate of people quitting their jobs voluntarily.
A healthy, yet somewhat weakening labor market, has big implications for Fed policy. When demand for labor exceeds supply, that leads to wage inflation, which leads to overall price inflation, as consumers bid for the same goods with more money in their pockets. When jobs are harder to obtain, the opposite is true, and inflation declines. Many had, and still have, high hopes for Fed rate cuts this year. Just five months ago, many had predicted at least six quarter-point rate cuts from the Fed this year. That estimate has since fallen to just one as the employment picture remains strong.
This week’s economic calendar will be interesting, which is not typical following a jobs report. On Wednesday, we get both the Consumer Price Index, or CPI, a popular gauge of inflation, and the Federal Reserve interest rate decision. Even though we are seeing rate cuts from other large central banks, like the Bank of Canada and the European Central Bank, no one expects the Fed to cut on Wednesday. But markets will be looking for clues for Fed policy later in the year.
As always, we will be watching and reporting back to you next week. Thank you.
