Our Take on the May Jobs Report — And Why It Favors These Portfolio Holdings
Let's break down the numbers, where the jobs are being created, and what it means for the Fed and rate cuts in the second half of 2025.
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After the very public spat between President Trump and Elon Musk that roiled the market Thursday afternoon, the market now has to contend with a stronger-than-expected May jobs report that also showed an acceleration in wage pressure.
Despite the indications captured in the May PMI data, the dismal May ADP Employment Change Report, and other data, the May Employment Report found 139,000 jobs created during the month, ahead of the 130,000 consensuses. Granted, it was a slower pace than the revised 147,000 figure but the number was well ahead of market fears.
Where Are These Jobs?
Perusing today's report, we find the bulk of May jobs were created in the healthcare sector (62,000), leisure and hospitality (48,000), and social assistance (16,000) with little change in other sectors. Interestingly, federal government employment continued to decline in May (-22,000) and is down by 59,000 since January, but those employees receiving ongoing severance pay are counted as employed in the establishment survey. This means we should expect to see larger federal government job losses in the coming months as the impact of DOGE and related programs is fully felt.
Wage Pressure Ticks Up
In ADP’s May Employment Change Report, the year-over-year pay growth for job stayers was ~4.5% and ~7% for job changers. We’ve also seen various data points, including those from the NFIB, that indicate finding workers with desired skill sets remains challenging and wage pressures are mounting. As such, we’re not surprised then to see the upward move in wage data found in the May Employment Report to 0.4%, month over month, compared to 0.23% average over the trailing three months. While some may annualize that May figure, which would equate to a 4.8%, if we annualize the year-to-date monthly figures, we find annualized wage gains are running near 3.4% so far this year — still a way away from the Fed’s 2% target.
Our Take
Following the May PMI data and the April Import/Export data published over the last two days, the Atlanta Fed’s GDPNow Model was revised back to +3.8% for the current quarter. The May Employment Report is likely to tip that figure a bit higher. Along with that wage pressure and the elevated Price data contained in the May PMI reports, the market will need to reconsider the three 25-basis point rate cuts it expects per the CME Fed Watch Tool.
With Atlanta Fed President Raphael Bostic signaling ahead of this data that he sees room for just one rate cut, the growing likelihood is more Fed heads will fall into that camp based on the aggregate data published this week. We also have to wonder if Bostic’s comment helps lay the groundwork for the Fed’s upcoming set of economic projections that it will publish alongside its next policy decision on June 18.
Our view for some time has been those forthcoming updates will give us a far better indication of what the Fed is likely to do or not do. Gaming it out, the odds of the Fed telegraphing on June 18 just one rate cut in second half of 2025 will increase if next week’s May CPI and PPI data support the May inflation data we’ve seen thus far and there is no meaningful progress on trade deals. Not trade talks, trade deals.
If that is the outcome we get, chances are it will take some wind out of the market’s sails. Recognizing this, while the market moves higher Friday, it may lead to some prudent profit-taking next week. However, more people working and earning better wages is a positive for overall consumer spending prospects, even if consumers remain selective. In that environment, we continue to favor our shares of Costco COST, Amazon AMZN, and American Express AXP.
At the time of publication, TheStreet Pro Portfolio was lomg COST, AMZN and AXP.
