May 2023 U.S. Nonfarm Payrolls data have been released. In April, the data showed 253K, and expectations for May 2023 data were 180K. May 2023 data came in at 339K, significantly exceeding expectations. In the same period, the unemployment rate was 3.7%, above the forecast of 3.5%. In April 2023, the unemployment rate was 3.4%. Average hourly earnings came in at 0.3%, despite expectations of 0.4%.
When we take a closer look at the new data, we can say that it almost met the market expectations except for the nonfarm payrolls figures. Generally, it is welcomed when nonfarm payrolls data came in well above expectations. The strength of the labor market is important for the continuation of economic growth. However, the U.S. economy is currently in an interest rate cycle. The goal of this interest rate cycle is to bring inflation down to acceptable levels. In order for inflation to fall, expenditures and investments must decrease, and, indirectly, nonfarm payrolls figures must also decrease. In economies with a strong labor market, it is quite difficult to solve the ongoing inflation problem. Therefore, a strong nonfarm payrolls data is not what the Fed wants now. On the other hand, all figures, except for the nonfarm payrolls data, reflect the Fed's strong stance on interest rates. The increase in unemployment figures and the decline in average hourly earnings indicate that the economy has started to cool. In the light of the new data, the forecasts regarding the Fed's stance on interest rates have changed. The first FOMC meeting will be held on June 14. While the 25 basis points increase expectations on Thursday, 1 June were 20%, the 25 basis points increase probability estimates as of Friday, 2 June are close to 30%. Below is Fedwatchtool's table of Fed rate hike forecasts.
