Friday, June 03, 2005

Unemployment Falls, ISM Non-manufacturing Still Healthy

- The Unemployment Rate fell to 5.1% in May versus estimates of a 5.2% rate and a 5.2% rate in April.
- Average Hourly Earnings for May rose .2% versus estimates of a .2% increase and a .3% gain in April.
- The Change in Non-farm payrolls for May was 78K versus estimates of 175K and 274K in April.
- The Change in Manufacturing payrolls for May was -7K versus estimates of -5K and -9K in April.
- The ISM Non-manufacturing Index for May fell to 58.5 versus estimates of 60.0 and a reading of 61.7 in April.

BOTTOM LINE: US employers added 78,000 workers to their payrolls last month, the fewest since August 2003. The unemployment rate unexpectedly fell to 5.1% from 5.2% in April and is now the lowest since September 2001. There were job gains in education and health services, while losses were mainly in the information services, real estate and leisure/hospitality industries. This report should quell fears of an increase in unit labor costs and strengthen the view that the Fed has one more tightening before a “pause.”

The ISM Non-manufacturing Index fell to a two-year low in May, but is still at relatively high levels. The index of new orders for non-manufacturing companies rose to 59.7 from 58.8. The index of order backlogs rose to 56.5 from 54.0. Export orders increased to 62.0 from 52.5. The gauge of prices paid declined to 57.9 from 61.9. This is the lowest level for prices paid since August 2003 and is down 22% since October 2004. This is the third inflation measure in the last week that showed a substantial deceleration.


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