Key takeaways from the blowout May jobs report

Stocks slipped on Friday to cap off a volatile day of trading, as investors parsed a stronger-than-expected May jobs report.

The Dow fell 87 points, or 0.2%. The S&P 500 slid 0.1% and the Nasdaq Composite lost 0.2%. Still, all three major indexes gained for the week.

The economy added 272,000 jobs last month, above expectations for 180,000 positions added. The unemployment rate rose to 4%, and wage growth rose for the first time in months, according to data from Bureau of Labor Statistics.

Investors waffled over the jobs report, leading to swings in the stock market. While strong jobs gains mean the US economy is unlikely to slide into a recession, it also means the Federal Reserve is unlikely to cut interest rates anytime soon. The central bank meets next week for its June policy meeting.

Traders are pricing in one to two rate cuts this year, according to the CME FedWatch Tool.

"We believe the Fed does want to cut this year, but a cut is unlikely to happen until September at the earliest," wrote John Kerschner, portfolio manager at Janus Henderson Investors, in a Friday note.

Of the two surveys that feed into the monthly jobs report, the establishment survey is often considered the “gold standard” by economists. The separate household survey, which provides greater detail on demographics and tees up the unemployment rate, is typically looked at as more volatile due to its smaller sample size and declining response rates.

That sample size is expected to get smaller, the Bureau of Labor Statistics confirmed Friday.

In an email response to CNN, BLS spokesperson Cody Parkinson confirmed the planned reduction.

“All surveys, including the CPS, are challenged by declining response rates and rising collection costs,” Parkinson wrote. “Flat budgets are not keeping up with these rising costs. Working together, BLS and the Census Bureau have for several years found ways to trim costs without reducing sample.”

Parkinson added: “As costs continue to increase, we estimate that a sample cut of about 5,000 households will be needed in Fiscal Year 2025. We will provide formal notice of any sample cut prior to implementation."

Stronger-than-expected wage gains for the month pushed up average hourly earnings to 4.1% over the past year, reversing a monthslong trend of cooling.

“The Fed doesn’t directly target wages; but where the wages picked up are in the [service sector] areas where we’ve seen the most inflation,” Diane Swonk, chief economist with KPMG, told CNN.

That’s in the service sector, everything from personal care services, cleaning and home maintenance, and vehicle maintenance, she said.

“And that is something that is hard for the Fed, because in order for some of the increases we’re seeing in the service sector, we need to see offset in goods prices in order to bring inflation down,” she said. “But you need a lot of that consistently to deal with stickier inflation that we’re seeing in the service sector; and, unfortunately, wages matter more in particular areas where inflation has gotten stickiest.”

Coming out on Wednesday, the same day the Fed is set to announce its latest monetary policy decision, early economists' projections are for consumer prices to have slowed on a monthly basis and for a key underlying inflation gauge to moderate as well.

However, the job growth seen in May was actually the most broad-based since January 2023, Bureau of Labor Statistics data shows.

The BLS’ “diffusion index,” which is a measurement of the percentage of industries that are adding or losing jobs, hit 63.4 in May. That means that 63.4% of 250 key private-sector industries tracked by the BLS added jobs last month.

That's well above the 56.6% seen in April, and it marks the highest level for the index since the start of last year.

"But just because [the health care, leisure and government] sectors are powering ahead doesn’t mean other sectors are weak," Nick Bunker, economic research director for North America at the Indeed Hiring Lab, wrote in a note issued Friday. "Interest rate-sensitive sectors, including construction and manufacturing, are still adding jobs. The gains are still broad-based."

Construction added an estimated 21,000 jobs while manufacturing added 8,000 positions, the highest monthly gain seen so far this year, BLS data shows.

In May, the employment rate of women in their prime working years (25 to 54 years of age) ticked up to a new all-time high of 78.1%, Bureau of Labor Statistics data shows.

Prior to the pandemic, women’s labor force participation rates rose faster than their male counterparts as female-dominated industries such as health care and caregiving saw rapid growth; educational attainment for women rose substantially; and there were greater inroads by women into traditionally male-dominated fields such as construction, agriculture, and maintenance.

Since the pandemic, other developments helped serve as further drivers: increased work flexibility and strong job gains in female-dominated industries such as health care.

Still, the overall labor force participation rate dipped in May to 62.5% from 62.7%, reversing progress made earlier this year.

"The sharp rebound in immigration over the past two years had been a key factor driving the labor supply higher, so the recent slowdown in immigration flows is likely acting as a restraint," Lydia Boussour, senior economist for EY, wrote in a note Friday.

When hiring slowed sharply in April, many wondered if the jobs market had entered a new trend of weaker growth. The May jobs report suggests that is not the case.

"It appears that the rumors of the death of the labor market were an exaggeration," Thomas Simmons, US economist at Jefferies, wrote in a report to clients Friday.

Simmons said it looks like April was an "anomaly, not the death knell" and hiring is "back on track."

Joe Brusuelas, chief economist at RSM, told CNN the May jobs report was "very strong" and dismissed the unemployment rate increase as "statistical noise."

"It's still the strongest labor market since the 1950s," Brusuelas said. "Good news is good news."

The jobs market is so strong that it has forced Wall Street to dial back bets on rate cuts.

"A July cut is also likely a pipe dream, and it's unlikely that things will fall apart quickly enough before September for a cut as well," Simmons from Jefferies said.

America's still-strong job market is proving to be a sturdy pillar of strength for the broader economy — one that isn't cracking just yet.

There's a reason why Wall Street, the White House and other institutions pay such close attention to the Labor Department's monthly employment report released on the first Friday of every month; it's a key gauge of the economy's health. If Americans are getting hired and commanding strong wage growth, then they'll be able to spend, which is the main driver of economic growth.

Fears that the economy is deteriorating fast aren't bearing out. Payroll growth in April came in below expectations and consumer spending also slowed notably that month. But data stretching over several months is showing that April's weaker-than-expected figures were likely just noise and not reflective of a new trend.

Through May, employers have added an average of 247,800 jobs per month, similar to last year's robust trend. Retail spending was flat in April, but in the six months through April, retail sales have only declined twice. And the latest decline in January was largely due to unseasonably cold weather.

The economy is still expected to slow further in the second half of the year, but it'll just reflect a continued "normalization" rather than a concerning slowdown, Garrett Melson, portfolio strategist at Natixis Investment Managers, told CNN.

Stocks turned positive after a bumpy start to Friday's session.

The Dow rose 217 points, or 0.6%. The S&P 500 gained 0.3% and the Nasdaq Composite added 0.1%.

President Joe Biden touted May’s jobs report in a statement Friday, writing, “The great American comeback continues, but we still have to make more progress.”

"Unemployment has been at or below 4% for 30 months — the longest stretch in 50 years," he noted, while lauding how "a record high share of working-age women have jobs."

In the statement, the president pledged to “keep fighting to lower costs for families like the ones I grew up with in Scranton,” while hitting Republicans in Congress for “a different vision — one that puts billionaires and special interests first.”