Macro Report-May US nonfarm payrolls fell sharply to six year low of 38k in major downside surprise:

Comment:May employment data delivered a significant blow to the US economic outlook at the effort to set up a rate hike in the summer. Nonfarm payrolls weakened drastically and came in well below even the lowest forecasts, hitting nearly a 6 year low. While there were some silver linings to be found, overall the jobs report was undeniably weak, and previous data was revised downward as well.

    Significant reasons for the weakness of the payroll data included the Verizon strike (which was the major driving force for telecommunications job loss), and the continued reversal of transitory factors seen in 1Q, as a lot of the job creation in the construction and temporary help services industries was unwound. Job losses in other areas such as mining and manufacturing have been a persistent trend and were unsurprising. However, the slowdown of job creation in other service sectors as somewhat surprising, and at odds with much of the other data out so far.

    There were some silver linings, as higher paying sectors still showed payroll growth, which was reflected in steady wage growth in the month. A shift toward quality rather than quantity of job gains is an expected step in the recovery process, but such a rapid drop of payrolls raises concerns. Other indicators exhibited mixed signals. While the headline unemployment data fell to a recovery low of 4.7%, a large part of this was tied to the workforce participation rate slowing to 62.6%, and the U6-headline unemployment gap rebounding to 5.0 ppt, marking less full time jobs compared to part time jobs.

    Overall, job market data disappointed market forecasts and all but eliminates chances for a June rate hike. With the payroll data at odds with other data, it remains to be seen if this is an aberration or a more worrying signal of weakness. With other data steady, a July or September rate hike remain on the table if jobs data rebounds strongly next month, but odds are balanced toward a delay of the rate hike.