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Investors have been on edge throughout 2024 waiting for Federal Reserve Chairman Jerome Powell to cut interest rates and juice the market. But every time there seems to be enough evidence for the staunchly \u201cdata-dependent<\/a>\u201d Fed chair to begin this long-forecast rate-cutting cycle, another hot inflation or jobs report comes out and ruins the party<\/a>.<\/p>\n Friday\u2019s non-farm payroll data<\/a> was the latest example of this frustrating trend. Many investors hoped the jobs numbers would show that the labor market is cooling, enabling the Fed to move up the timing of its rate cuts.<\/p>\n Instead, the Bureau of Labor Statistics reported<\/a> Friday that the U.S. economy added 272,000 jobs in May, topping economists\u2019 consensus forecast for 190,000. Wage growth also came in ahead of expectations. Average hourly earnings rose 0.4% month over month, and 4.1% from a year ago, in May.\u00a0<\/p>\n Julia Pollak, ZipRecruiter\u2019s chief economist, told Fortune<\/em> that while this report was largely good news for consumers, it wasn\u2019t exactly what Powell was looking for.<\/p>\n \u201cI think the Fed and the investor class had all been hoping for sort of an unambiguous signal of labor market cooling\u2014declining wage growth, declining job growth, etc.\u2014everyone wants a really clear signal that interest rate cuts are appropriate in July or September, because high interest rates are holding back a lot of activity. They put a lot of investments on ice,\u201d she explained. \u201cThis report did not deliver that.\u201d<\/p>\n To Pollak\u2019s point, before the jobs report, Fed Funds futures contracts were pricing in a 70% chance of an interest rate cut in September, but now that\u2019s dropped to roughly 50%, according to CME Group\u2019s FedWatch Tool<\/a>.<\/p>\n There were some mixed signals under the surface, however, that could foreshadow the labor market slowing that Powell has been looking for. But many of these signs of potential labor market weakness also come with caveats.\u00a0<\/p>\n That\u2019s why, for Pollak, the latest jobs report \u201cdelivers a kind of hazy, mixed picture, and that\u2019ll lead to continued controversy about what the best course of action is for the Fed.\u201d<\/p>\n \u201cThe main takeaway is that it\u2019s complicated,\u201d she said. \u201cAnd we\u2019re all going to have to wait for more data to figure out what\u2019s really going on.\u201d<\/p>\n The unemployment rate is the perfect example of the mixed signals in May\u2019s jobs report. It ticked up from 3.9% in April to 4% last month, even as the economy added 272,000 jobs.\u00a0<\/p>\n This seemingly counterintuitive reading is the result of the way the Bureau of Labor Statistics creates jobs reports, producing two separate data sets.\u00a0<\/p>\n The first data set comes from the establishment survey, which is based on a sample of 666,000 businesses nationwide. This is where the 272,000 new jobs number came from, and it is the survey most economists emphasize.\u00a0<\/p>\n But there\u2019s also a second data set called the household survey, which is based on a sample of 60,000 U.S. households across the country. According to that survey, the unemployment rate ticked up slightly in May due to a 408,000-person decline in employment that overshadowed a 250,000-person decline in the total labor force.<\/p>\n Thomas Simons, Jefferies\u2019 senior economist, noted that discrepancies between the establishment and household surveys are not unusual. But he also warned in a Friday note that there is no silver lining to the increase in the unemployment rate in May.\u00a0<\/p>\n Capital Economics\u2019 chief U.S. economist Paul Ashworth echoed those comments in his own note to clients Friday, warning that the rise in unemployment was for \u201call the wrong reasons.\u201d\u00a0\u00a0<\/p>\n \u201cThat slump in the household survey measure will embolden the bears, who have been highlighting the growing gap with payroll employment,\u201d he wrote.<\/p>\n Still, if you ask Nick Huber, Indeed\u2019s chief economist, the slight uptick in the unemployment rate isn\u2019t a concern for now. \u201cThe labor market is still gliding toward a soft landing. The rise in unemployment can almost entirely be chalked up to workers 24 and under, while prime-age employment rose,\u201d he told Fortune<\/em> via email Friday.<\/p>\n To Huber\u2019s point, the share of 15-24 year olds working dropped 3 percentage points from a year ago in May. But for workers aged 25 to 54, known as prime-age workers, the workforce participation rate actually rose to a 22-year high<\/a> of 83.6% last month.<\/p>\n The slight rise in the unemployment rate wasn\u2019t the only mixed signal that caught the eye of many investors in the May jobs report.<\/p>\n The household survey showed the economy lost 625,000 full-time jobs in May and added 286,000 part-time workers, which can signal that businesses are cutting back on labor costs as the economy slows. However, this data is known to be volatile<\/a>. Last month for example, the number of full-time jobs rose by 949,000, while part-time jobs fell by 914,000.<\/p>\n \u201cTaken in the round, today\u2019s payrolls report raises more questions than answers and has displayed some volatile moves in most key areas,\u201d David Page, head of macroeconomic research at AXA<\/a> IM, told Fortune<\/em> via email.<\/p>\n He noted that the establishment survey was stronger than expected, while the \u201cinherently more volatile\u201d household survey remains weak and higher wage growth was a modest surprise. When it comes to June\u2019s Federal Open Market Committee (FOMC) meeting, these mixed signals mean Powell will likely stick to his old script.<\/p>\n \u201cWe do not think this will have a major impact on next week\u2019s FOMC meeting, but if anything it will urge more patience before easing policy, serving more to keep the FOMC in an uncommitted, \u2018data dependent\u2019 mode,\u201d Page said.<\/p>\n<\/div>\n\nMixed signals will leave Powell in wait-and-see mode<\/h2>\n
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