May Payrolls Crush Expectations, Reinforcing Case for Fed to Keep Rates Elevated 

Employers added 172,000 jobs during in May, well above the 88,000 consensus estimate, while the unemployment rate held steady at 4.3%, according to the U.S. Bureau of Labor Statistics. Job gains for March and April were revised higher by a combined 93,000, further strengthening the overall trend. 

Hiring was broad-based across key sectors. Leisure and hospitality led with 70,000 new jobs, followed by health care and social assistance, which added 47,200 positions. Government employment rose by 52,000 in a notable shift from recent softness, while manufacturing payrolls increased by 7,000. 

Wage growth remained steady. Average hourly earnings rose 0.3% month over month, in line with expectations and slightly above April’s 0.2% increase. On a year-over-year basis, wages increased 3.4%, matching forecasts but easing from the prior 3.6% pace. 

For Federal Reserve policymakers, the report provides further evidence that the labor market remains on solid footing despite elevated interest rates and slowing economic growth in some sectors. 

Markets had already largely dismissed the possibility of near-term interest-rate cuts. Following the stronger-than-expected employment report, investors increasingly shifted their attention toward the risk of another rate increase. 

According to market pricing, there is now a 62% probability that the Federal Reserve will raise interest rates by December.