• 151 days Could Crypto Overtake Traditional Investment?
  • 156 days Americans Still Quitting Jobs At Record Pace
  • 158 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 161 days Is The Dollar Too Strong?
  • 161 days Big Tech Disappoints Investors on Earnings Calls
  • 162 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 164 days China Is Quietly Trying To Distance Itself From Russia
  • 164 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 168 days Crypto Investors Won Big In 2021
  • 168 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 169 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 171 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 172 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 175 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 176 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 176 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 178 days Are NFTs About To Take Over Gaming?
  • 179 days Europe’s Economy Is On The Brink As Putin’s War Escalates
  • 182 days What’s Causing Inflation In The United States?
  • 183 days Intel Joins Russian Exodus as Chip Shortage Digs In
  1. Home
  2. Markets
  3. Other

FOMC Minutes Forgotten in Under a Minute?

In a New York minute everything can change
In a New York minute, lying here in the darkness
I hear the sirens wail, somebody going to emergency.

New York Minute by Don Henley. 1989.

Chances of a 25-bp rate hike later this month fell to 48% from 68% after the payrolls, increasing speculation that the FOMC will pause. But as we stated earlier this week, the Fed's increased importance vis-à-vis the inflationary repercussions of the falling dollar maintain our inclination towards a June hike. Of the major factors that would cause us to revise this forecast are a retreat in the May core CPI (to no higher than 0.2%) and core PCE price index (to no higher than 2.0% y/y) as well as another 4-5% decline in the S&P 500, which would add total losses to 10% from the year's 1326 high.

Indeed, today's payrolls underscore the Fed's growth-inflation dilemma. And although chances of further data weakness this month could bolster the argument of the doves, the Fed's preoccupation with the downside growth risks remains outweighed by their inflationary worries. Although 10-year yields are now equal to the 5.00% fed funds rate -- a sign of a pause -- the yield has yet to push higher towards the 5.10-15% level on comments by hawkish Fed members and by the remaining inflation data.

US non-farm payrolls rose by 75K in May from a revised increase of 126K in March, while the unemployment rate dipped to 4.6%. Average hourly earnings growth slowed to 0.1% from 0.6%. The revisions for the April and March payrolls totaled a net decrease of 37K.

Our decision to reduce our forecast from 150K to 110K yesterday was founded on the increase in the weekly jobless claims for May and the April decline in construction spending (first in a year). We argued that the decline in April construction spending was expected to filter through further slowdown in construction jobs.

Indeed, construction jobs rose by 1k, with the 3-month average falling to 6K, the lowest since April 2003, fortifying the argument that the real estate slowdown is not only manifesting itself via cooling home sales, but also via the construction of residential homes.

Manufacturing employment reverted to its old dismal ways, shedding 14K jobs after a rare 4-month string of job creation between October and January, which was a result of post Katrina-Rita Hurricanes rebuilding.

But the job losses were not only confined to the "old economy" manufacturing sector. Services employment added 85K jobs in May after 81K in April, dragging the 3-month average to 111K, the lowest level since November.

The damage on the dollar was exacerbated by the weaker than expected 0.1% reading in average hourly earnings, the lowest since August. Although the year-on-year slipped to 3.7% from 3.8%, it was the second highest in 5 years.

The 4.6% unemployment rate was the lowest since summer 2001 may carry a good tune to it in this weekend's headlines, but markets are not only well aware of the advantages of an eroding labor force on the jobless number. The realities of the establishment survey show the undeniable reality of slowing job creation after 400-bps of tightening.


Back to homepage

Leave a comment

Leave a comment