NFP overrides a lot of other weaker economic data, shows resilience of U.S. labor market

Non-farm payrolls rose 280k in May, beating expectations for a 226k gain. Private-sector employment increased by 262k, to the upside of the median estimate of 220k. Government payrolls rose 18k due mainly to gains at the local level, which rose 15k.

The resilience of the labor market shown in this report overrides a lot of other weaker economic data. While it is probably not enough to convince the Fed to step off the sidelines at their next meeting in June, Sept is still very much on the table. This is being reflected in the bond market with fed funds futures moving up 5 basis points, the two-year bond yield moving up 6 basis points as of writing. December is now fully priced in, and the probability of a September rate hike has risen to about 40%.

Even the rise in the unemployment rate was a positive story, due not to weak job growth but a move of people into the labor market. This is reflected in a rising employment-to-population ratio, which at 59.4% is at its highest level since June 2009.

"The momentum in the labor market has been relatively consistent despite the soft patch in economic growth. With signs pointing to steady rebound going forward, the case for interest rates at zero interest rates has diminished considerably. Nonetheless, the pace of tightening will be gradual, reflecting a lower neutral policy rate and continued uncertainty about the underlying level of labor market slack." notes TD Economics