By: Tiffany Wilding, Managing Director and Economist

What happened? The May U.S. employment report showed payrolls were much stronger than expected (339k). However, details of the report were more mixed. The unemployment rate increased to 3.7% along with more moderate wage gains. Aggregate hours worked contracted while the average work week continued to tick lower. This was enough to slow aggregate incomes, despite the surge in payrolls, which will weigh on spending activity.
What does it mean? The timing of this report is somewhat awkward, after Vice Chair nominee Jefferson used his speech on Wednesday to signal a pause at the upcoming Federal Open Market Committee meeting. Still, we think the details as well as other recent data revisions actually suggest somewhat less overheating than previously feared.
What is next? We expect the Fed to bridge the gap between still strong hiring activity and broader slowing at the June Federal Open Market Committee meeting by delivering a “hawkish pause”, where they skip a rate hike at this meeting but raise the projected path for interest rates going forward and signal another hike could be coming in July.