All eyes were on the NFP report which was released on Friday, with the odds of further rate hikes by the FED being volatile recently as inflation has slowed in the US. The market perception of the NFP report was generally positive, considering it to be strong. However, despite this view, there has been no significant change in the implied odds of a June interest rate hike, which currently stands at 29%. CIBC (Canadian Imperial Bank of Commerce) predicts that the Federal Reserve will make its final rate hike in July. However, the market has only priced in a 17 basis point increase for that particular meeting. This indicates that many investors anticipate the possibility of economic conditions worsening between now and the scheduled meeting on July 26.

CIBC has observed that the household survey tends to exhibit more volatility and less reliability on a month-to-month basis. In the recent employment report, the household survey showed a significant drop of 310,000 jobs, which starkly contrasts with the establishment survey that indicated a gain of 339,000 jobs. However, when comparing year-to-date figures, it appears that the household survey has added 1.9 million jobs, while the payroll report shows an increase of 1.6 million jobs. This suggests that the May report could be a correction for the previous over-reporting.

The total participation rate in the labor market remained steady, indicating no significant change. On the other hand, the prime-age (25-54 years) participation rate surpassed its pre-pandemic peak. CIBC suggests that this trend of increased participation among prime-age individuals may continue. This could be driven by Americans who have depleted their savings and are affected by inflation, as they may be motivated to seek additional sources of income.

May 2023 US Non-Farm Employment Payroll Report

• May non-farm payrolls +339K vs +190K expected
• Prior was +253K (revised to +294K)
• Two-month net revision +93K vs -149K prior
• Unemployment rate 3.7% vs 3.5% expected
• Prior unemployment rate 3.4%
• Participation rate 62.6% vs 62.6% prior
• U6 underemployment rate 6.7% vs 6.6% prior
• Average hourly earnings MoM +0.3% vs +0.3% expected
• Average hourly earnings YoY +4.3% vs +4.4% expected
• Average weekly hours 34.3 points vs 34.4 expected
• Change in private payrolls +283K vs +165K expected
• Change in manufacturing payrolls -2K vs +6K expected
• Household survey -310K vs +139K prior
• Birth-death adjustment +231K vs +378K prior
• Full report

Ahead of the report, the market was pricing a 29% chance of a Fed hike on June 12 and USD/JPY was trading at 138.93. This is the 15th consecutive report that has beaten the economist consensus. Job gains occurred in professional and business services, government, health care, construction, transportation and warehousing, and social assistance.