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US Job Growth Surges by 272,000 in May Despite Unexpected Rise in Unemployment

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The latest U.S. jobs report for May defied expectations as job growth accelerated, with employers adding 272,000 jobs, surpassing the forecast of 185,000 by LSEG economists. However, the unemployment rate rose unexpectedly to 4%, its highest level in over two years, contrary to expectations of it remaining steady at 3.9%. Average hourly earnings also increased by 0.4% last month, exceeding expectations, and wages rose by 4.1% annually. Despite the positive job growth, there are concerns about the rise in the unemployment rate, recent job growth being in part-time roles, and a decline in temporary jobs.

The labor market is closely monitored for signs of a slowdown as Federal Reserve policymakers consider when to cut interest rates. While inflation has decreased from its peak, progress has slowed, leading to speculation about a potential rate cut. Recent economic data has been mixed, with some indicators pointing towards a cooling U.S. economy. However, the strong jobs report for May has shifted expectations for an imminent rate cut, causing stocks to fall initially before rebounding slightly.

Following the release of the jobs report, the odds of a September rate hike fell to about 56%, down 12 percentage points from the previous estimate. Continued job growth could delay potential rate cuts, as it may lead to more buoyant inflation. The May report highlighted job growth in various sectors, with health care, government, leisure and hospitality, and professional services showing notable gains. Despite some revisions to job gains in March and April, the labor market remains historically tight, indicating ongoing strength in the economy.

Overall, the May jobs report provided conflicting signals about the state of the labor market, with strong job growth but a rising unemployment rate. The unexpected increase in wages and the overall positive job gains have raised doubts about the need for immediate rate cuts by the Federal Reserve. As policymakers continue to assess economic data and market conditions, the decision on interest rates will likely be guided by incoming information. The resilience of the labor market and ongoing job growth suggest that rate cuts may be delayed until later this year or even into the next year, depending on how economic trends evolve.

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