U.S. economy adds 223,000 jobs in May; odds of June interest rate increase bounce back

The U.S. economy added 223,000 jobs in May, well ahead of the 190,000 gain expected by economists surveyed by Briefing.com Revised figures for April showed the economy adding slightly fewer jobs, a revised 159,000 new jobs versus an initial 164,000.

The official unemployment rate fell to 3.8% in May from 3.9% in April, matching a 18-year low. The full unemployment rate, which includes discouraged workers who have stopped looking for work and workers with part-time jobs who would like full-time work fell to 7.6% from 7.8% in April. Labor force participation remains puzzlingly low at 62.7% in May, down a tick from 62.8% in April.

Wages rose by 0.3% and the 12-month increase in average hourly earnings climbed to 2.7% from 2.6% last month.

Along with the “solution” of the Italian crisis overnight (which had caused some investors to say that the Fed wouldn’t raise rates in the middle of a crisis), the strong jobs report renewed Wall Street conviction that the Federal Reserve will raise interest rates at its June 13 meeting and then perhaps twice more in 2018.

The CME FedWatch tool, which calculates the odds of a Fed move by looking at prices in the Fed Funds futures market, showed odds of a June increase of 0.25 percentage points climbing to 91.3% today from 83.5% on May 31. The odds on an additional September 26 interest rate increase moved up to 69.1% today from 54.6% yesterday. For the December 19 meeting odds of a final additional interest rate increase rose to 36.3% from 26.4% yesterday.

The yield on the 10-year U.S. Treasury bounced back today with the yield climbing 5 basis points to 2.91% as of 10:00 a.m. New York time.

The Standard & Poor’s 500 stock index was up 0.8% as of 10:00 a.m. in New York; the Dow Jones Industrial Average was ahead 0.9%. Financials bounced back strongly from declines during the Italy crisis. This morning the Financial Select Sector SPDR ETF (XLF) is up 1.3%.