Equity Markets Anticipate Rate Cuts After Latest Jobs Report
A few more job reports like this and we will have to start seriously fearing a U.S. economic recession.
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At first glance, I thought a positive thought. The thought was fleeting. The roses were pretty and smelled nice, but the stems had thorns. The Department of Labor's Bureau of Labor Statistics had released the results of their two employment surveys for May, the Establishment and Household surveys. It's rather incredible that in 2025, in a world where "big brother" knows if one is interested in purchasing a bicycle or a pair of hiking boots, that this kind of high-profile data is still derived through such inexact means.
These are important numbers. They impact policy. They impact the financial markets. Yet, the Bureau of Labor Statistics (BLS) is still asking a small number of businesses and households about their situation and then extrapolating those numbers over the entire population. No wonder the results are literally all over the place. No wonder it has been at least five years since anyone with an IQ above 75 took these numbers to heart.
The trend? That still matters. Precise data? Don't make me laugh.
Job Creation
Non-Farm Payrolls is considered to be the headline number for the monthly BLS release. For May, drawn from the Establishment Survey, the BLS is reporting Non-Farm Payroll growth of 139,000 seasonally-adjusted positions, which was above projections for something in the mid-120,000s. That's positive, right? Not when readers consider that the April print was revised lower by 30,000 jobs and the March print was revised lower by 65,000 jobs. Now, we're talking about a net Non-Farm Payrolls gain of just 44,000 jobs.
That puts this NFP number in line with the 37,000 private sector jobs that ADP had reported being created in May this past Wednesday. Just FYI, the ADP Report has been a lot more accurate, in my opinion, for a couple of years now, than the BLS surveys. Now, are you ready to get sick to your stomach? Taken from the Household Survey, the BLS is reporting a decrease of 696,000 employed persons. That's ugly. That's 71,000 newly unemployed persons and a whopping 625,000 individuals that gave up and left the civilian labor force. Ouch!
Want to know something just as scary taken from the Establishment Survey? We all know that these numbers are seasonally adjusted. Though it often creates more confusion than it's worth, this is understood. A birth/death model is also applied. This is the birth and death of businesses, not individuals, and is also just an estimate. Well, this month, the birth/death model added 199,000 jobs created to that Non-Farm Payrolls number of 139,000, which was really a net 44,000. Yeah, we're just cooking with gas now, aren't we?
Key Data
The Unemployment Rate, which is drawn from the Household Survey, which showed the large loss of jobs in May, held steady at 4.2%, largely because the exodus from the labor force resulted in a Participation Rate of just 62.4%, down from 62.6%. This is the weakest that the participation rate has been since December 2022. The participation rate among the key 25- to 54-year-old demographic, dropped from 83.6% to 83.4%. The Employment to Population Ratio decreased from 60% to 59.7%.
The number of individuals working part-time for economic reasons decreased by 66,000 persons and the number of individuals working part-time for non-economic reasons decreased by 135,000 persons. With 201,000 part-time jobs lost, the implication taken from the household survey would suggest 495,000 full-time jobs were also lost. After a one-month reprieve, it would appear that full-time employment is back in line with its multi-year downward trend. The Underemployment Rate, like the unemployment rate, held steady at 7.8% in May.
Average weekly hours also held steady at 34.3 hours, for a third consecutive month, which is the low end of the recent historical range after having bottomed at 34.1 hours back in January. That was a post 2010 low.
Wage growth was actually positive in this report, which given the overall weakness in the data, may be taken as inflationary by central bankers. Average hourly earnings accelerated to month-over-month growth of 0.4%, down from 0.2% in April. On a year-over-year basis, average hourly earnings printed at growth of 3.9%, unchanged from April, but well above expectations for growth of 3.7%.
Demographics
The unemployment rate along gender, ethnic background and education:
- Adult Men improved from 4.0% to 3.9%
- Adult Women increased from 3.7% to 3.9%
- Teenagers increased from 13.0% to 13.4%
- White held steady at 38%
- Black or African American improved from 6.3% to 6.0%
- Asian increased sharply from 3.0% all the way to 3.6%
- Hispanic or Latino improved from 5.2% to 5.1%
- High School Dropouts improved sharply from 6.1% to 5.5%
- High School Graduates increased from 4.0% to 4.5%
- Some College/Associate Degrees improved sharply from 3.7% to 3.3%
- Bachelor's Degrees and More increased from 2.5% to 2.6%
My Thoughts
Job creation definitely stumbled in May. It looks like there were almost certainly job losses that were evenly felt across both full-time and part-time laborers. I find it particularly alarming that so many individuals appear to have left the labor force at a time when credit delinquencies seem to be on the rise. Perhaps there are errors in the data. We've sung that tune before. Perhaps folks are really having trouble finding employment. Speaking anecdotally, as I have children in their late 20s and early 30s, this is something that I do hear from their peer group.
It is nice to see some wage growth. I am just not too sure that this fits with the rest of the data. Again, either there is an error in that data, or this is the start of some re-acceleration in what will result in upward inflationary pressure on the economy.
Demographically, I find it somewhat troubling that unemployment appears to have increased so suddenly across the Asian community. I also don't know how positive, from an educational perspective, it is to see high school dropouts rapidly gaining ground on high school graduates and college dropouts gaining ground so rapidly on those with college and graduate degrees. This suggests that what jobs are being created do not require higher education and for that reason, could come with lower starting salaries.
On Policy...
One would think that such a weak monthly employment report would end up pressuring the central bank to cut short-term interest rates sooner rather than later. That's how equity markets responded.
The Dow Jones Industrial Average, S&P 500, Nasdaq Composite and Russell 2000 all rallied sharply in response to the numbers. That's not how the bond market responded. Bond traders sold U.S. Treasuries, forcing yields higher across the entire slope of the curve. The U.S. Dollar Index rallied sharply upon the release and then returned to where it came from, which makes more sense.
President Trump, as may have been expected, made his opinion known. The president urged Federal Reserve Chair Jerome Powell and the entire FOMC to lower interest rates when they get the chance on June 18.
The president posted, "Too Late' at the Fed is a disaster! Europe has had 10 rate cuts, we have had none. Despite him, our country is doing great. Go for a full point, Rocket Fuel!" on his social media platform Truth Social. For those who do not know, "too late" has become the president's nickname for Powell.
As for Fed Funds Futures markets trading in Chicago, two 25-basis point rate cuts are still being priced in over the balance of 2025 (in September and December) with another two rate cuts priced in for calendar year 2026.
Do I think we are on a path headed for recession? No, I do not. Another employment report or two like this, though, and we are going to have to start taking the idea seriously.
At the time of publication, Guilfoyle had no positions in any securities mentioned.
