US job growth surged in May and wages accelerated, prompting traders to push back the expected timing of Federal Reserve interest-rate cuts.

Nonfarm payrolls advanced 272,000 last month, a Bureau of Labor Statistics report showed Friday, beating all projections in a Bloomberg survey of economists. Average hourly earnings climbed 0.4% from April and 4.1% from a year ago, both picking up from the prior report.

However, the unemployment rate — which is derived from a separate survey — increased to 4% from 3.9%, rising to that level for the first time in over two years.

The job market has largely defied expectations in the past two years, powering the broader economy. However, that strength is expected to moderate as a prolonged period of high interest rates weighs on hiring plans as well as broader activity.

This is one of the last major reports Fed officials will see before next week’s meeting, when they’re widely forecast to keep borrowing costs at a two-decade high. A closely watched inflation report will be released on the morning of their Wednesday decision.

Economists will be especially attuned to updated quarterly projections after inflation and employment mostly surprised to the upside at the start of the year. Officials aren’t expected to cut rates until the end of 2024 at the earliest, even as their Group of Seven peers in Europe and Canada did so this week.

Stock futures and Treasuries sold off and the dollar strengthened after the release. Traders trimmed bets on how much the Fed will cut rates this year, dialing back expectations from earlier in the week as recent data on manufacturing and job openings came in softer than anticipated.

Two Surveys
The jobs report is composed of two surveys: one of businesses that generates the payrolls and wage data, and another smaller one of households used to produce the unemployment rate.

The household survey also publishes its own measure of employment, which dropped by more than 400,000 in May, the largest decline this year. This metric has increasingly been at odds with the headline payrolls figure, sparking debate among economists as to which is the truer signal of the labor market.

The pickup in unemployment mostly reflected people returning to the labor force and not finding work. The number of people who lost or left their jobs both fell.

The participation rate — the share of the population that is working or looking for work — fell to 62.5%, matching the lowest since early last year. The rate for workers ages 25-54, however, rose to the highest since 2002.

Broad Gains
Job growth in May was fairly broad, led by health care, government and leisure and hospitality. Professional and business services added the most jobs since the start of the year.

Data out Wednesday from the BLS suggested payrolls might have grown at a much slower monthly pace on average last year than initially reported. The Quarterly Census of Employment and Wages covers more than 95% of US jobs, and are eventually used in annual revisions to the monthly data.

In Friday’s report, aggregate weekly payrolls — a broad measure of employment, hours and earnings — advanced 0.6% after stalling in April. 

This article was provided by Bloomberg News.