Another payroll report has come in below expectations, which strengthens our conviction that Fed policymakers will be “resolutely patient” as they wait to see “substantial further progress” toward the Fed’s goals. Headline nonfarm payrolls rose by 559 thousand, with modest upward revisions to the prior two months of 27 thousand. Job gains continue to be led by leisure and hospitality (+292 thousand), but that reflects the deep jobs hole still left in the industry with payrolls still down 15 percent from February 2020. Other notable job gains occurred in public and private education (+144 thousand) and healthcare (+46 thousand).
Construction payrolls fell by 20 thousand despite strong housing activity, as materials shortages may be delaying some construction activity. On a brighter note, motor vehicle manufacturing recovered 25 thousand jobs in May after job losses in April, reflecting some factories restarting production.
The household survey, which should be better at picking up the reopening/creation of businesses, showed job gains of just 444 thousand, validating the message from payrolls of somewhat disappointing jobs growth.
The new employment release further supports widespread reports of labor shortages. Overall average hourly earnings were much stronger than expected, up 0.5 percent following +0.7 percent in April, and wages in the low wage leisure and hospitality sector jumped 1.3 percent. As the chart below shows, low wage industries, where unemployment insurance (UI) benefits are more competitive with wages, are seeing larger wage gains. With 25 states now opting out of federal unemployment benefits around the end of June, we should get an interesting case study in how big of a role the benefits are playing in labor supply challenges.
Concerns over labor supply are also validated by a decline in the labor force participation rate, down 10 basis points (bps) to 61.6 percent, which helped the unemployment rate fall by 30 bps to 5.8 percent. But returning participation to its pre-pandemic level has been cited as a goal by several Fed speakers, so this development is a setback in “substantial further progress” required before tapering of asset purchases can begin.
Investing involves risk, including the possible loss of principal. Investments in fixed-income instruments are subject to the possibility that interest rates could rise, causing their values to decline. High yield and unrated debt securities are at a greater risk of default than investment grade bonds and may be less liquid, which may increase volatility.
Basis point – One basis point is equal to 0.01 percent.
This material is distributed or presented for informational or educational purposes only and should not be considered a recommendation of any particular security, strategy or investment product, or as investing advice of any kind. This material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. The content contained herein is not intended to be and should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax and/or legal professional regarding your specific situation.
This material contains opinions of the author, but not necessarily those of Guggenheim Partners or its subsidiaries. The opinions contained herein are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. No part of this material may be reproduced or referred to in any form, without express written permission of Guggenheim Partners, LLC. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information. Past performance is not indicative of future results.
Guggenheim Investments represents the following affiliated investment management businesses: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Distributors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Corporate Funding, LLC, Guggenheim Partners Europe Limited, Guggenheim Partners Fund Management (Europe) Limited, Guggenheim Partners Japan Limited, GS GAMMA Advisors, LLC, and Guggenheim Partners India Management.
#48450