Nonfarm Payrolls Add 223K Jobs, Unemployment Drops To 3.8%

Employment growth is strong and it is not entirely without wage pressure. Nonfarm payrolls rose 223,000 in May to just top Econoday's high estimate while the unemployment rate moves down a tick to a new expansion low of 3.8 percent. The monthly gain for average hourly earnings came in at the high end of expectations, up 0.3 percent for a year-on-year rate that is up a tenth to 2.7 percent.

Payroll gains are lead by trade & transportation, up 53,000 in the month for a sector where delivery delays have been climbing, and include solid 31,000 gains for both retail and also professional & business services with the gain for the latter suggesting that employers are scrambling to fill positions. Manufacturing payrolls rose 18,000 which hits Econoday's consensus with construction payrolls up 25,000.

The participation rate moves down a tenth to an even thinner 62.7 percent as the number of people actively looking for work is down 281,000 to 6.065 million. The workweek for all employees is unchanged at 34.5 hours though factory hours and factory overtime are down which point to give back for May's industrial production report.

But today's report is about strength and the risk that available slack in the labor force is disappearing and in turn raising the potential of wage inflation. The results clearly support expectations for a rate hike at this month's FOMC.