CMS Macro: May's U.S. non-farm payroll data slightly exceeded expectations, but the previous value was revised down, weakening the urgency for the Federal Reserve to cut interest rates in Q3

According to the Zhitong Finance APP, CMS released a research report stating that the non-farm payroll data in the U.S. for May slightly exceeded expectations, but the previous values were revised downwards. The labor participation rate under the household survey decreased, which may reflect the impact of changes in immigration policy. At the same time, the reduction in labor supply suppressed the rebound of the unemployment rate. Overall, the labor market is still on a moderate cooling trajectory. The non-farm payroll data for April slightly exceeded expectations, and the details of the household survey also reflect that the labor market remains resilient, with a slowdown in wage growth. Due to this week's ADP data falling short of expectations, concerns about a rapid deterioration in employment in overseas markets have intensified. After the risk was alleviated, the U.S. Treasury yield curve rose, the U.S. dollar index strengthened, and the three major U.S. stock indices rebounded, while overseas markets cooled their expectations for a rate cut by the Federal Reserve in June.

Specifically:

1) In May, non-farm payrolls increased by 139,000, slightly above market expectations, but the previous month's data was revised downwards. The non-farm payroll data for April was revised down from an initial value of 177,000 to 147,000, and March's data was revised down from 185,000 to 120,000, totaling a downward revision of 95,000. The non-farm payroll increase in April was 177,000, higher than the market expectation of 138,000, while the previous month's data was significantly revised down. The non-farm payroll data for March was revised down from an initial value of 228,000 to 185,000, and February's data was revised down from 117,000 to 102,000, totaling a downward revision of 58,000.

2) By industry, the government sector recorded -1,000 (previous value 1,000), with the federal government recording -22,000 (previous value -13,000), state governments recording 0 (previous value 3,000), and local governments adding 21,000 (previous value 11,000). The federal government has reduced a total of 44,000 over the past three months. Although Elon Musk has left the U.S. government team, the impact of the Department of Labor Statistics (BLS) counting paid leave or those receiving severance pay as part of employment may still be reflected in recent months. The business services and temporary support services sectors turned negative, with business services recording -18,000 (previous value 10,000) and temporary support services recording -20,000 (previous value 3,000). Healthcare and social assistance remain the main driving sectors, adding 78,000 this period (previous value 85,000). The leisure and hospitality sector recorded 48,000 (previous value 29,000). The retail sector saw a deeper decline, recording -7,000 (previous value -3,000). According to the Federal Reserve's latest Beige Book, tariffs and economic uncertainty have led to a cooling of labor demand in most regions.

3) The household survey data reflects a moderate cooling in the labor market. The labor participation rate decreased to 62.4% (previous value 62.6%), mainly due to the labor participation rate for those aged 25-54 dropping to 83.4% (previous value 83.6%), which may reflect the impact of changes in immigration policy. The reduction in labor supply suppressed the rebound of the unemployment rate, with the U3 unemployment rate remaining at 4.2% (previous value 4.2%), and the U6 unemployment rate, which covers the broadest range of workers, at 7.8% (previous value 7.8%).   4) Hourly wage growth year-on-year is 3.87% (previous value 3.86%), and month-on-month has risen to 0.42% (previous value 0.19%). The average weekly working hours in the private sector recorded 34.3 hours (previous value 34.3 hours), with employment demand stabilizing at a relatively low level. Although the month-on-month hourly wage growth rebounded this month, in the context of a gradually cooling labor market, a single data point is not sufficient to intensify wage inflation constraints on the Federal Reserve.

5) This month, the BLS supplemented the details of the revisions to the April institutional and household survey data. For the institutional survey data, the BLS adjusted two subcategories: home healthcare services and personal and household services, resulting in a decrease in healthcare employment and an increase in social assistance employment for April. For the household survey data, the BLS noted that the unemployment rate and labor participation rate for April would not be affected, mainly adjusting the weights for certain regions in April, with minimal and negligible impact.

Due to the ISM Services PMI released this Wednesday falling below the expansion line for the first time in nearly a year, recording 49.9% (previous value 51.6%), and the ADP employment data released on the same day showing an increase of only 37,000 (previous value 62,000), significantly below expectations, the U.S. Treasury yield curve experienced a downward shift, with the 10-year Treasury yield falling from 4.45% to around 4.36%. After the release of this non-farm data, the risk of a significant cooling in the labor market was alleviated, with CME reflecting that overseas markets believe the Federal Reserve is likely to start cutting interest rates in September, with two rate cuts expected within the year. The 2-year Treasury yield rebounded by 8 basis points to around 4.0%, and the 10-year Treasury yield rose to around 4.46%. The U.S. dollar index rebounded to 99.2, and the three major U.S. stock indices rebounded, with the S&P rising 1% to above 6000 points.