NEW YORK (Reuters) – U.S. employment increased more than expected in May, but a moderation in wages could allow the Federal Reserve to skip an interest rate hike this month for the first time since embarking on its aggressive policy tightening campaign more than a year ago.

Nonfarm payrolls increased by 339,000 jobs last month, the Labor Department said in its closely watched employment report on Friday. Data for April was revised up to show payrolls rising by 294,000 jobs instead of 253,000 as previously reported.

MARKET REACTION:

STOCKS: S&P e-mini futures gained and were last up 0.5%.

BONDS: The yield on 10-year Treasury note rose and was last up 2.3 basis points from the close at 3.631%; The two-year U.S. Treasury yield was up 6.4 basis points from Thursday at 4.405%.

FOREX: The dollar index was last flat at 103.52.

COMMENTS:

NICK BROOKS, HEAD, ECONOMIC & INVESTMENT RESEARCH, ICG, LONDON   

“The numbers were well above expectations and they revised the April numbers as well. There may be some mitigating factors, but the bottom line is after these numbers it is pretty much guaranteed that the Fed has to raise rates again. Whether they raise in June or July is still somewhat of a close call, but it increases the chances of the Fed raising rates in June where they had been planning to pause.”

“It does make it very clear that we have one more hike and potentially more coming from the Fed, because these numbers are feeding into what we already are seeing in terms of growth data, particularly in the service sector, showing the U.S. economy has been more resilient than anyone expected.”

GUY LEBAS, CHIEF FIXED INCOME STRATEGIST, JANNEY MONTGOMERY SCOTT, PHILADELPHIA

“Overall pretty good economic data for a Friday morning, strong jobs growth, moderate wage growth, there’s a little bit of something for everyone in the report… On the margin I’d say the data are slightly more positive for economic growth and slightly representing higher risk of inflation, but it’s all very, very marginal given the underlying cross currents. So, a small selloff (in Treasuries), which is give or take what we’re seeing, seems reasonable.”

KIM FORREST, CHIEF INVESTMENT OFFICER, BOKEH CAPITAL PARTNERS, PITTSBURGH

“While it appears to be a hot number on the actual number of people employed, the wage rate is not increasing as fast.””This is very interesting as this shows that people are returning to the workforce.””The interesting thing is yesterday’s continuing claims remain low although the number of newly unemployed continues to be consistent, so that means people are getting jobs and it looks like wage pressures are coming down because we have more people entering the workplace.””That is a softening effect and is this the mythical soft landing? Looks like that.”

“This low wage inflation number is very good news for those of us who believe the Fed should pause.”

PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK “Hourly wages is the key and they came in just in line with what was expected. The report, on surface, looks strong but the fact that hourly wages are not rising moderately is a good sign. It shows that wages are not exploding and they’re beginning to moderate, even though they’re consistent from one month to another, which should be positive for markets.”

“In terms of the Fed, it doesn’t change the prospects of the Fed skipping in June, which means they will skip and leave the door open for a rate hike at the next meeting if inflation doesn’t remain elevated.”

ART HOGAN, CHIEF MARKET STRATEGIST, B RILEY WEALTH, NEW YORK

“The average hourly earnings, which is probably the more important piece of information which was estimated to be at 4.4%, came in at 4.3%. The Fed pays more attention to that particular line in the report then they do to the headline number.”

“The unemployment rate surprisingly moved from 3.4% to 3.7%. It is still an extremely low unemployment rate but (is the) first significant bump up and that’s something that we’ve been waiting for.”

“This is a reflection of a labor market that while still robust, is softening gently, not rapidly. That’s exactly what the Fed would like to see. The Fed wants to tame inflation without crushing the jobs market, and this is another piece of evidence that they’re actually well along their way to getting that accomplished.”

“We’ve got one more piece of data that’s important as it pertains to inflation before the Fed meets. But the Fed has enough evidence in hand to take a pass at the next meeting and remain data dependent for the July meeting, and that’s exactly what they’re trying to message to us.”

OLIVER PURSCHE, SENIOR VICE PRESIDENT, WEALTHSPIRE ADVISORS, NEW YORK.

“It was certainly much stronger than expected. I still think the Fed pauses I June but reiterates that it’s just a pause.”

“We’ve seen some earnings warnings, there’s a big lag in monetary policy, and we saw the unemployment rate tick up to 3.7%. Makes you wonder, is there going to be a rise in the (labor market) participation rate.  That’s going to force unemployment up. There’s still an argument for the Fed to raise rates. The inflation picture is much stronger than they want it to be.”

“Right now, if you’re a Fed governor you’re very happy with this report. It continues to demonstrate the economy is resilient. Were not anywhere near a recession right now, and for the FOMC, it means they have elbow room to do the things they want to do.”

“If anything, analysts and economists are overestimating the downside risk for a recession and our overestimating how quickly liquidity can be drained from the system.”

(Compiled by the Global Finance & Markets Breaking News team)

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