Last week, the labor market took center stage, presenting a nuanced picture of continued resilience alongside subtle signs of softening. While the U.S. employment report for May surprised to the upside with solid job gains, other indicators like job openings (JOLTS) and the ADP report hinted at a cooling trend in hiring and increasing claims for unemployment benefits. Meanwhile, the S&P 500 showed modest gains throughout the week, reacting to every new piece of labor market data, with the biggest jump occurring after the closely watched May jobs report on Friday.
Employment Report
The U.S. labor market continued its resiliency in May, adding more jobs than anticipated for a third straight month. The latest employment report showed that 139,000 jobs were added last month, exceeding the expected 126,000 addition. However, this marks a slight slowdown from April’s downwardly revised number of 147,000 new jobs. Meanwhile, the unemployment rate remained near historically low levels at 4.2%, as expected. Wage growth also surprised to the upside last month with average hourly earnings up 0.4% compared to the previous month and up 3.9% from one year ago.
While May’s headline data looks strong on the surface, underlying details of the report point to a slowing labor market. Over the past year, average job growth has hit a four-year low, a level not seen since the pandemic's lingering effects were still evident. Furthermore, the proportion of employed individuals relative to the total population has fallen to its lowest point since 2021. Overall, the latest jobs report will likely bolster the Fed’s wait-and-see approach as it continues to assess the impact of policy changes to the economy.
Job Openings and Labor Turnover Summary (JOLTS)
Job openings unexpectedly rose in April, but overall turnover held steady. The latest JOLTS report revealed job openings increased by 191,000 to 7.391 million, exceeding the predicted 7.110 million. Although openings remain above pre-pandemic levels, they have steadily declined over the past three years and currently sit 4.7 million below their 2022 peak.
The report also showed that hires and layoffs increased, while quits declined. The hiring rate inched up to 3.5%, but remained near its lowest level in the past decade. The quit rate, which indicates worker confidence, ticked lower to 2.0%, well below pre-pandemic norms. Lastly, the layoffs rate edged higher to 1.1%. The ratio of job openings to unemployed workers was at 1.03, well below the peak from a few years ago when there were two jobs available for every one unemployed worker.
ADP Employment Report
In yet another sign of a cooling labor market, private sector hiring slowed for a second straight month by adding the fewest number of jobs in over two years. According to the ADP employment report, 37,000 private jobs were added in May, less than the projected 111,000 addition. The pickup last month was due to growth in service-providing industries which added 36,000 jobs whereas goods-producing industries lost 2,000 jobs. Additionally, medium size companies (50-249 employees) were the only establishment size that saw growth in May, adding 51,000 jobs. Most notably, however, was that employment at large companies (500+ employees) fell for the first time since September 2023.
The report also showed that pay growth for both job-stayers and job-changers was little changed from the previous month. Pay gains for job-stayers were up 4.5% year-over-year, remaining at the slowest pace in almost four years. Meanwhile, pay gains for job-changes remained at 7.0%, the highest level since August.
Weekly Unemployment Claims
The number of people who filed for unemployment for the first time rose for a second straight week to its highest level in eight months. Initial jobless claims increased by 8,000 from the previous week’s downwardly revised figure, to 247,000. The latest reading, with data through May 31, was higher than the 236,000 forecast and adds to the “softening labor market” narrative.
Meanwhile, the number of people who had already filed for unemployment and continued to claim benefits inched down but still sits near multi-year highs. Continuing jobless claims fell by 3,000 from the previous week’s downwardly revised figure to 1.904 million. The latest reading, with data through May 24th, was just below the 1.910 million forecast.
Market Reactions
The S&P 500 closed above 6000 for the first time since mid-February. The index posted its second consecutive weekly gain, finishing up 1.5% from the previous Friday. As a result, the SPDR S&P 500 ETF Trust (SPY) rose 1.6% last week. Meanwhile, the S&P Equal Weight Index was up 1.2% from the previous week and the Invesco S&P 500® Equal Weight ETF (RSP) rose 1.3%.
The 10-year Treasury yield finished the week at 4.51%, while the 2-year note finished at 4.04%.
The CME FedWatch Tool currently shows a 99.9% likelihood that the Fed will hold rates steady at their next meeting this month. Markets are pricing in two 25 basis point cuts for later this year coming at the September and December meetings. Additionally, two 25 basis point cuts are projected in 2026.
Economic Data in the Week Ahead
The upcoming week will feature a handful of closely watched economic indicators. The Bureau of Labor Statistics will release the Consumer Price Index (CPI) for May and the Producer Price Index (PPI) on Thursday. These reports will provide the latest inflation update, which continues to be top of mind for consumers, businesses, investors, and policymakers. Then, on Friday, the University of Michigan will release its preliminary consumer sentiment report for June. Consumer sentiment has plunged to multi-year lows over the past several months, as consumers continue to cite concerns about the future outlook.
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