May's weak hiring and sluggish wage growth should not deter the Federal Reserve from raising interest rates in June, but it puts any further hikes this year in doubt.
There were 138,00 nonfarm payrolls added in May, and average hourly wages rose just 2.5 percent on an annual basis. The unemployment rate fell to 4.3 percent from 4.4 percent, viewed as a negative since the number of people participating in the workforce also declined.
Stock futures gave back gains after the report but reversed losses after opening lower and rose to new highs. Economists had expected job growth of 185,000, and some had raised their forecasts Thursday after ADP reported 253,000 private sector payrolls were added in May. Bond yields fell to their lows of the year, with the 10-year yield at 2.15 percent. Yields move lower when prices move higher.
"While the Fed still struggles to go in June, the one big takeaway from this report is that a September rate hike is largely off the table. September was always going to be a struggle because of its proximity to the debt ceiling debate," said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets.
There were also major revisions to March and April payrolls, with a total of 66,000 fewer jobs reported for those months, taking the three-month average to just 121,000.
"It is weaker than the rate we had in 2016, and certainly the first three months of this year. There is a notable shift there. The last three months average of 121,000 ... I think they'd have to go back a while to find a trailing three months that weak," said Ron Sanchez, chief investment officer at Fiduciary Trust.