U.S. Nonfarm Payrolls Rise 75,000, Wage Inflation Falls to 3.1%

07/06/2019 12:32:28 Economic Indicators

The U.S. economy created fewer jobs than expected in May and wage inflation unexpectedly eased, adding to speculation that the Federal Reserve will cut official interest rates for the first time in a decade.

Nonfarm payrolls (NFP) rose by 75,000 in May, below consensus expectations for 185,000, according to official government data released on Friday. That was down from an average of over 200,000 in March and April.

The jobless rate held steady as expected at 3.6%, the lowest level since December 1969 when it was 3.5%.

Wage inflation grew just 3.1% on an annualized basis, dropping from the prior month’s reading of 3.2. Consensus had expected no change.

Although U.S. futures pared gains immediately following the release the U.S. dollar index, which measures the greenback against a basket of major currencies, extended losses and was down 0.4% at 96.60 at 8:45 AM ET (12:45 GMT), compared to 96.98 ahead of the release.

The data "can only fuel rate cut speculation and more technical evidence of $USD top," said Marc Chandler, chief market strategist at Bannockburn Global Forex via Twitter. He pointed to the fact that not only job creation, but earnings and hours worked were "disappointing".

After an initially modest response, the benchmark 10-year Treasury yield fell some four basis points to 2.06%, its lowest since September 2017.

Markets have steadily hiked bets that the Fed will cut rates this year, as trade tensions escalate between the U.S. and China, while President Donald Trump threatens Mexico with increasing tariffs in a separate dispute over illegal immigration.

Fed Chair Jerome Powell this week indicated a willingness to “act as appropriate to sustain the economic expansion."

The worse-than-expected job creation, coupled with easing wage inflation adds to conviction that the U.S. central bank could ease policy.

While markets expect rates to hold steady at the June 18-19 policy meeting, Fed fund futures are pricing the first rate cut to arrive in July with another following in September. The probability of a third cut in December is holding near the 50% mark.