Job Growth Slows, Manufacturing Pulls Back after Surge

- The Change in Non-farm Payrolls for May was 75K versus estimates of 170K and 126K in April.
- The Change in Manufacturing Payrolls for May fell 14K versus estimates of 5K and 19K in April.
- The Unemployment Rate for May fell to 4.6% versus estimates of 4.7% and 4.7% in April.
- Average Hourly Earnings for May rose .1% versus estimates of a .3% increase and a .6% gain in April.
- Factory Orders for April fell 1.8% versus estimates of a 2.1% decline and a 4.0% gain in March.

BOTTOM LINE: The US economy added fewer jobs than expected for a second month in May and wage growth slowed, Bloomberg reported. Smaller wage gains increase the probability of a Fed “pause” as unit labor costs make up two-thirds of inflation. The labor force participation rate remained at 66.1% for the fourth consecutive month. I continue to believe the labor market is slowing, but will remain relatively healthy without generating substantial unit labor cost increases.

Orders placed with US factories fell 1.8% in April, led by aircraft and computers, Bloomberg reported. Excluding transportation equipment, orders rose .2%. Orders for capital goods excluding aircraft, a gauge of future business activity, fell 1.7% versus a 3.4% gain the prior month. The inventory-to-shipments ratio rose to 1.17 months, the highest since July 2005. I continue to believe manufacturing is slowing to more average rates.