Analysts at CS Capital Markets explained that although nonfarm payroll employment came in softer than expected (138k versus Nomura: 210k, Consensus: 182k), the overall report shows a continued tightening in labor markets and should help solidify the Fed’s decision to hike rates in June.

Key Quotes:

“The reading of a 138k increase in nonfarm payroll employment sits above the “steady state” range of 75-125k Chair Yellen recently mentioned. Given the slowing growth of the working-age population, we expect job growth to decelerate going forward.

Smoothing through monthly volatility, nonfarm payrolls increased an average of 162k per month during the first five months of 2017, slightly below the 173k average of the last five months of 2016.”

“More importantly from the FOMC’s perspective, the unemployment rate continues to drift lower, ticking down 0.1pp to 4.3%. The underemployment rate, a broader measure of labor market slack, decreased by 0.2pp to 8.4%.”

“The labor force participation rate declined slightly by 0.2pp to 62.7% but remains within the 62.4-63.0% band observed since September 2015. Average hourly earnings increased 0.2% (0.153%) in May, in line with expectations and pushed down for technical reasons.”

“Nonetheless, average hourly earnings increased 2.46% y-o-y, the lowest reading since March 2016. The deceleration in average hourly earnings remains a puzzle.”

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