The May employment report was rather disappointing printing at 559k, versus 675k expected. Furthermore, April’s weak print was left broadly as it was initially (278k vs 266k expected). This leaves a still-considerable employment gap of 7.6 million jobs. While the figure was below consensus, the unemployment rate fell to 5.8% from 6.1%. Average hourly earnings grew just 0.5% month over month in May (2.0% y-o-y). The data highlighted the ongoing reopening of the economy with leisure/hospitality beating estimates where the wage gains were especially astonishing with 14.5% q-o-q annualized (3.7% y-o-y). It seems employers have indeed to ‘bid up’ wages to attract/retain workers.
The relative softness in job creation continues to fuel the debate regarding inflation. Thursday’s CPI consensus for the headline data is 4.7% y-o-y. Policy makers argue that the current price increases are being driven by transitory anomalies created by the pandemic such as supply-chain bottlenecks and a surge in spending as economies reopen. Over the weekend, US Treasury Janet Yellen said that President Biden should go ahead with his $4 trn spending plans even if it triggers inflation that persists into next year. Secretary Yellen said during an interview that “If we ended up with a slightly higher interest rate environment it would actually be a plus for society’s point of view and the Fed’s point of view.” Adding, that “We’ve been fighting inflation that’s too low and interest rates that are too low now for a decade,” and that “we want them to go back to” a normal interest rate environment.
A first estimate showed that headline HICP inflation picked up to a year-on-year rate of 2.0% in the euro area in May, up from 1.6% in April, while core inflation rose to 0.9% from 0.7%. Separately, the OECD reported that annual consumer inflation in its 36 member states rose to 3.3% in April, the largest increase since 2008, while the Food and Agriculture Organization reported that global food prices rose in May at their fastest monthly rate in more than a decade.
In the US, the services ISM survey rose to 64.0, its highest level since the series began in 1997, suggesting the (services-led) recovery remains robust. The manufacturing index still nudged up to 61.2 from 60.7. In Europe, the final May euro area composite PMI printed at 57.1, revised up by 0.2 pts. Activity was mainly driven by the services sector across all economies. Globally, sentiment in services was up strongly, by 2.4pts to 59.4, after rising by 2.3pts in April. Meanwhile, sentiment in manufacturing was relatively flat at 56.0 (+0.1). New orders continued to improve (57.3, +0.5) while export orders lost momentum (54.9, +0.2), confirming a shift towards domestic demand. Production continues to struggle to keep up with demand. A phenomenon concentrated in advanced economies as backlogs increased to 60.1 (+1.8). However, at a global level, delivery times increased by only 0.2 pts, perhaps an early sign that we are close to peak in terms of supply bottlenecks. Nevertheless, price pressure continued unabated, as input prices increased significantly, up 1.8 pts to 71.6.