The May employment report was stronger than economists were expecting. Payrolls came in at 339,000 and the unemployment rate increased to 3.7%. Yahoo Finance Live's Julie Hyman and Brad Smith break the numbers down.
JULIE HYMAN: Good morning and welcome to Yahoo Finance Live. I'm Julie Hyman with Brad Smith. Happy jobs Friday, everybody. Let's talk about expectations for the numbers quickly here. We are looking for a nonfarm payroll. The consensus estimate from economists, 195,000, Brad. Unemployment rate, 3.5%, and average hourly earnings seen rising at a 4.4% rate year over year, 0.3% rate on a month over month basis. That would be a slowdown, by the way, in the rate of increase for those average hourly earnings.
BRAD SMITH: Yeah, several things that we're going to be thinking about leading into this report. One area that I'm continuing to keep an eye on has come up in many of our conversations this week is not just the expectation that some of the firms like Citi are looking for-- some of the economists that we've had on on the headline number are looking for but also on the wage front and how that continues to play into the broader inflationary environment.
If you ask the San Francisco Fed, it doesn't play a more outsized or major role. However, you could argue easily that for the wages and the continued increase that we've seen or at least right now where wages are continuing to hold up, how consumers at the end of the day are trying to use the wages as best they can to battle back against inflation in many of their core purchases that they're making.
JULIE HYMAN: Yeah, well, will we continue to see the same rate of inflation in those wages? That is going to be a really key question-- a key question here. We are also going to be closely watching any seasonal effects here. This is something that Goldman Sachs pointed out in their note previewing the numbers here that job growth tends to slow in May. Then you have teens come into the labor force in the summer months, so then you might see a rebound there. So that's something we're going to be watching.
On the flip side of the equation from hiring, of course, is firing. And we got some very interesting data earlier in the week from Challenger, Gray & Christmas. Their cuts report-- their layoffs report basically is what they look at here. And we have seen basically an uptick in layoffs overall this year, even though you've seen them sort of go up and down on a month over month basis.
But really the story is in technology in particular where we have seen those cuts. Again, volatility on a month over month basis, but overall on an absolute basis year over year increases in the number of layoffs. This is what we know is happening right? Anecdotally--
BRAD SMITH: Right.
JULIE HYMAN: --we know it because we've been covering the companies that are cutting. That's just the overall number that we're looking at.
BRAD SMITH: And even as we think back to the data that we've already seen come through this week, especially on the form of private payrolls, you think about the wage increases that we're seeing there both across the services and goods producing sector. But specifically within the industries that saw the most outsized jumps, leisure and hospitality continues to come to mind.
And then you also think kind of sector by sector going forward where that will continue to hold strong. But leisure and hospitality, a key area that continues to come back from the depths of despair, if you want to call it that, over the course of the onset of the pandemic. And so with that, we'll see exactly where that number, that figure continues to add on to that larger, overarching nonfarm payrolls number.
JULIE HYMAN: One of the really other interesting points that Goldman made in its preview note is that leisure and hospitality tends to be a sector that relies heavily on lending-- on borrowing, I should say. And because of the perhaps credit crunch, perhaps because the slowdown in lending on the part of banks in the wake of the regional bank crisis, we might see some-- maybe some initial signs of that happening in leisure and hospitality.
I mean, as always, it's difficult to extrapolate the big picture from these very specific numbers, but that is something we'll be watching for. And then another thing we'll be watching for and trying to read the tea leaves on is AI and whether there is starting to be a little bit of an effect. Challenger, Gray & Christmas ask people if that was-- asked companies if that was one of the reasons that they were cutting jobs. I think they were asked for the first time. I saw Bloomberg's Tracy Alloway point this out, and that 3,900 job losses were attributed to AI.
BRAD SMITH: That's really interesting, and especially given the commentary that we had from Yelena earlier this week who gave us a little bit more inclination around when you should expect this to show up as an input or any type of effect on the employment situation. And she expects that to not be the case for some time. However, a question now being put forward, to your point there a moment ago, as well.
Just taking a look at the futures coming into this report, we're holding strong up by about 4/10 of a percent across the board for the Dow, the S&P 500, and the NASDAQ futures. We'll see if we see any type of shift in that futures activity as we're just about an hour out from the start of trade.
JULIE HYMAN: Yes, we will. And we'll see, you know, whether the reaction is positive or negative depending on the extrapolation for the Fed here. 13 straight months now that this jobs numbers have beat the average economists' estimate, and we'll see if they do it again. Again, the estimator here for 195,000 jobs being added.
So taking a look here, 339,000 dollars-- 339,000 jobs added to the US economy last month. Again, 339,000 is this initial read here versus the 195,000 that was estimated. So the 14th straight month now that we have seen job gains come in ahead of estimated. Of course, the revisions will be important as well.
Unemployment rate going higher, however, to 3.7%. That's versus the 3.5% estimated and versus the 3.4% that was the read for the prior month. Average hourly earnings coming in in line with estimates on a month over month basis, up 3/10 of 1%. Hourly earnings on a year over year basis rising just 4.3%.
And I'm looking at the labor force participation rate as well to see if there was any uptick there. No. 62.6%. Bang on is what we continue to see for that labor force participation rate. But again, overall, 339,000, another-- I mean, I think I can safely say-- blowout number when we look at this jobs number.
And I think, A, yes, illustrates that the job market is still growing. B, illustrates it's still really hard to predict what's happening in this job market. I mean, this is something we're going to talk about much later in the show, this idea of revisions here because we have seen the last few jobs reports come out and beat big and then get revised lower in the final read. So just something to keep an eye on.
BRAD SMITH: Yeah, and some of the job gains-- the largest job gains occurred in professional and business services, government, health care, construction, transportation, and warehousing, and social assistance. Now, interesting there what was left out-- leisure and hospitality, for perhaps one of the first reports in multiple years at this point was not the-- it doesn't look like it was the biggest job gainer or adding the most to this headline number here.
That continued to trend up in May. That was up by about 48,000. But health care added 52,000 jobs in May. That's similar to the average monthly gain of about 50,000 over the past 12 months though. But leisure and hospitality getting knocked off of that top spot as that recovery continues. But at the same time, the employment in that industry remains below its February 2020 level by about 349,000 jobs. Comes out to about 2.1% there.
And then the other kind of major figure to continue to look at here is the revisions that you were mentioning a moment ago. And the revisions that we saw, the change in total nonfarm payroll employment for the month of March, that was actually revised up by 52,000.
JULIE HYMAN: Oh, interesting.
BRAD SMITH: Yeah, from 165,000 to 217,000. And then the change for April, that was revised up by 41,000, from 253,000 to 294,000.
JULIE HYMAN: Interesting. Now, they do revise them twice. There's a first revision and then another revision. So-- but nonetheless, that-- that's quite interesting to see the gains get even more. So if you recall, Yelena Shulyatyeva of BNP Paribas told us earlier in the week-- we asked her what would be the number that would get the Fed a little worried and maybe tip the scales towards a hike at the June 14 meeting. She said, 250,000. The number is 339,000. So let's talk about the market's perception of whether that is the case. For that we're going to bring in Jared Blikre. Jared, what are you seeing?
JARED BLIKRE: Well, we saw a little bit of weakness initially, a spike down in futures, but really not a whole lot of action here. This is overnight. And let me put some candlesticks on here so we can see any quick-- there we go. We got that little downdraft there. A strong number means the Fed maybe has to get a little bit more aggressive. Not really seeing too much heat, I would say, in the hourly earnings, so that's really not a principal place of concern for the market right now.
Let's also take a look-- this is the NASDAQ. Let's take a look at the S&P 500 futures. And first of all, you'll notice all three of the majors are already in the green here. We've had a pretty good run for the week. S&P 500 has been down. It's hard to see these little wicks here on the candle, but it's also been up, so a whole lot of nothing right there.
And here's the Dow futures net up just a few points since we got that drop of the information. And here's the 10-year T note. These are the futures, so these move inversely to the yield. So we actually have the 10-year yield going up a little bit. And let's see what's happening with the two-year. Two-year edging down, which means the yield just edging up a little bit. Not too much action there.
We'll check out to see what's happening with gold, and I'm going to put some candlesticks back here. It looks like a bit of a downdraft with a quick reaction. And let's get a handle on copper. Not a lot there. And here's my favorite. I like to look-- I like to look at Bitcoin because Bitcoin is very heavily levered to the Fed and its balance sheet, but we're not seeing much movement there either. This is the summer, guys. And absent, a huge, huge outlier. Most traders don't want to be at their desks, so--
JULIE HYMAN: Same. Same, Jared. Same.
JARED BLIKRE: We are.
JULIE HYMAN: But you know, there's important work to do.
JARED BLIKRE: Yes.
BRAD SMITH: There's a big report to discuss today.
JARED BLIKRE: Yo, people's work.
BRAD SMITH: The jobs report, yeah. Jared, thanks so much for breaking that down.