FX.co ★ Payroll Outperformance To Soothe Fears About Economy - Capital Economics

The unexpectedly significant rise in non-farm payrolls is likely to alleviate concerns about the economy, while the increase in average earnings may prompt the Federal Reserve to remain vigilant about the inflationary pressures, according to Capital Economics economist Paul Ashworth.

Data from the Labor Department on Friday revealed a substantial increase in non-farm payroll employment, with 272,000 jobs added in May. This figure exceeds the economists' forecast of approximately 185,000 jobs.

Average hourly earnings rose by 0.4 percent from the previous month, surpassing the anticipated 0.3 percent growth forecasted by economists.

For more information, visit: "U.S. Job Growth Far Exceeds Estimates In May But Unemployment Rate Ticks Higher."

Capital Economics predicts a significant decline in public sector employment growth over the summer, as state and local governments curb spending to address rising budget deficits.

Ashworth noted that the dramatic decrease of 408,000 in household employment will bolster the views of pessimists, who have emphasized the widening discrepancy with payroll employment figures.

"The latest alternative QCEW employment data, which serve as benchmarks for payrolls, suggest that payrolls may need substantial downward revisions for the second half of this year. Therefore, some of the recent overperformance might prove to be misleading," Ashworth commented.

"However, we anticipate that post-revision data will indicate slower employment growth rather than an outright decline, which would align with a recession having begun last fall."

Moreover, the decline in job openings and voluntary quits suggests that average earnings growth will moderate to below 3.5 percent later this year, Ashworth added.