Thread by @RickRieder

We’ve seen the pace of #payroll gains decelerate to roughly the monthly trend pace from the last expansion; consensus has been waiting for this moment and expected a 195,000 job gain in May, but the data printed considerably stronger at 339,000 #jobs gained.

The three-month moving average of #nonfarm payrolls sits at 283,000, down from 334,000 jobs at the start of the year, but what the #LaborMarket imbalance needs is more supply and more slack.

The #unemployment rate ticked up to 3.65%, close to its 12-month average level, and average hourly #earnings (a volatile figure) gained 0.33% month-over-month and 4.3% on a year-over-year basis.

Stronger than expected data wasn’t that surprising, in our view, since both the April #JOLTS job openings data from earlier in the week, and yesterday’s May @ADP were suggestive of continued labor market strength.

Further, many #economic observers have long underestimated the dynamism inherent in the U.S. labor #market and its ability to recalibrate in the face of challenges.

We’re witnessing a labor market that’s still very tight, aided by shortfalls in some #ServiceSectors, as well as by historic #demographic trends at play in the economy today.

As we’ve noted many times in the past, the #leisure and hospitality sector and the noncyclical education and #healthcare sector are both still running below their pre-Covid employment trend, even as pent-up services #demand continues to normalize.

These sectors tend to operate with much greater #headcounts than many others, with lower average #wage rates and they’re still in need of workers, and those sectors with above-trend employment lie in smaller industries.

The upshot is that these higher-headcount sectors have clearly been supporting the overall job gains in recent months, as the rest of private #employment has slowed.

Added to this, three million more #BabyBoomers #retired during the Covid period than would otherwise have been expected, so the result is a supply/demand for labor that is still in favor of strong employment and wage dynamics.

From the @federalreserve’s perspective, this dynamic also implies stickier #inflation and greater difficulty in generating #slack in the system.

Yet rather than see the #Fed crush the labor market now, in order to bring down still excessively high inflation, we think it’s likely that in time the #economy could recalibrate organically and in a healthier manner.

Interestingly, while economy-wide sentiment remains poor, the hard #economic data that has come in over recent months suggests impressive #resilience.

After raising the #policy interest rate by 500 basis points over the course of a year, we think it makes a great deal of sense for the #Fed to take its time to study incoming data, and exercise caution over damaging a labor #market that remains quite strong.