The long-awaited by investors report from the American labor market was published today. It indicates quite good situation on American labor market. This, in turn, may translate into actions of the Federal Reserve.
In May 2022, the US economy added 390 thousand full-time jobs. Despite being the smallest since last April, the reading came in above market forecasts of a 325,000 increase. The largest increases were in leisure and hospitality, professional and business services, and transportation and warehousing, while retail employment fell. Meanwhile, wages rose 0.3 percent month-over-month, less than expected (up 0.4 percent), and the unemployment rate was unchanged at 3.6 percent. This could mean that the labor market situation remains good in terms of employment, but is already worse from the perspective of wages not following inflation. This, in turn, could mean that US consumers will have less money to spend, and that's a simple path to reduced consumption and a slowdown in the US economy.
The stock market reaction seems to be unequivocal. After the publication of the data, the Dow Jones index lost over 200 points, while the S&P 500 and Nasdaq fell by 1.1 per cent and 1.8 per cent respectively. The markets seem to be afraid of a strong tightening of monetary policy, and comments from Fed representatives may leave no illusions. Fed Vice Chair Lael Brainard said the Fed is unlikely to change the path of interest rate hikes as the central bank tries to tame skyrocketing inflation. Also contributing to the deteriorating sentiment was the behavior of Tesla shares, which fell more than 5 percent after its CEO Elon Musk warned that he wants to cut 10 percent of its workforce due to the very poor sentiment in the economy. Rising unemployment and lack of adequate wage growth is a recipe for economic recession, which could negatively affect financial markets and resemble the situation 50 years ago.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
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