US job growth slowed in May amid headwinds from tariff uncertainty, while the unemployment rate held steady at 4.2 per cent, potentially giving the Federal Reserve cover to delay resuming interest rate cuts for a while.
Nonfarm payrolls increased by 139,000 jobs last month after rising by a downwardly revised 147,000 in April, the labour Department’s Bureau of labour Statistics said in its closely watched employment report on Friday.
The economy needs to create roughly 100,000 jobs per month to keep up with growth in the working age population. That number could decline as President Donald Trump has revoked the temporary legal status of hundreds of thousands of migrants amid an immigration crackdown.
Much of the job growth this year reflects worker hoarding by businesses amid Trump’s flip-flopping on tariffs, which economists say has hampered companies’ ability to plan ahead. Opposition to Trump’s tax-cut and spending bill from hardline conservative Republicans in the US Senate and billionaire Elon Musk adds another layer of uncertainty for businesses.
Employers’ reluctance to lay off workers potentially keeps the US central bank on the sidelines until the end of the year. Financial markets expect the Fed will leave its benchmark overnight interest rate unchanged in the 4.25 per cent-4.50 per cent range this month, before resuming policy easing in September.
US Treasury yields rose after data on Friday showed that employers added more jobs than economists had expected in May, while average hourly earnings also rose more than was forecast.
Employers added 139,000 jobs last month, above estimates for a 130,000 increase. Average hourly earnings increased 0.4 per cent in May, above expectations for a 0.3 per cent increase. The unemployment rate held steady at 4.2 per cent, as expected.
The yield on benchmark US 10-year notes was last up 5.1 basis points on the day at 4.446 per cent. Interest rate sensitive two-year note yields rose 3.8 basis points to 3.962 per cent.
US stock index futures extended gains on Friday after a stronger-than-expected jobs report calmed worries over the health of the labour market in the wake of President Donald Trump’s tariff war.
The unemployment rate stood at 4.2 per cent, in-line with a forecast of 4.2 per cent.
At 08:30 a.m. ET, Dow E-minis were up 232 points, or 0.57 per cent, S&P 500 E-minis were up 36.25 points, or 0.63 per cent, and Nasdaq 100 E-minis were up 142.75 points, or 0.66 per cent
Meanwhile the dollar was headed for a weekly loss on Friday, undermined by signs of fragility in the US economy and little progress on trade negotiations between Washington and its partners, ahead of a critical jobs report. The US nonfarm payrolls report expected later on will draw greater scrutiny after a slew of weaker-than-expected economic data this week underscored that President Donald Trump’s tariffs were taking a toll on the economy.
Analysts say the data so far has indicated that the US economy faces a period of increasing price pressures and slowing growth, which could complicate Federal Reserve monetary policy, even as Trump has been critical of the institution’s cautious stance.
Against a basket of currencies, the dollar edged up to 98.9, and was headed for a weekly loss of 0.5 per cent.
The euro was taking a breather after hitting a 1-1/2-month top on Thursday following hawkish remarks from the European Central Bank. It last bought roughly $1.1423, down just 0.18 per cent on the day.
Traders have pushed back expectations on the timing of the next rate cut, but continue to anticipate a 25-basis point reduction by year-end.
Deutsche Bank’s Mark Wall said he still expects 50 basis points worth of ECB rate cuts, adding “it is still too early to judge the impact of the trade war, and the path of the trade war is in any case still inherently unpredictable.”
Reflecting a struggling economy, data showed that German exports and industrial output fell more than expected in April. Most currencies had surged against the dollar late on Thursday, helped by news that Trump and Chinese President Xi Jinping spoke on a call for more than an hour, before paring some of their gains. Investors remain worried about US trade negotiations and the lack of progress in hashing out deals ahead of an early July deadline. The highly anticipated call between Trump and Xi also provided little clarity and the spotlight on it was quickly stolen by a public fallout between Trump and Elon Musk.
Elsewhere, cryptocurrency dogecoin, often supported by Musk, was a touch firmer after falling to a one-month low on Thursday.
US equity funds saw outflows for a third straight week through June 4, as concerns lingered over uncertainty surrounding US trade policies, while investors remained cautious ahead of a key jobs report due Friday.
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