The strength in the May Employment Report released this morning suggests the economy is rebounding from a confluence of negative forces including the rising dollar that hurts exporters, the plunge in crude oil prices that has hurt the energy industry, disruptions from the west coast port labor issues, and lingering effects from harsh winter weather that dragged down first quarter growth.

We continue to expect the economy to post faster growth in the second quarter and to maintain good momentum throughout the second half of 2015. Despite the rebound in the jobs data and some firming of wage growth, we believe overall inflationary pressures remain benign.

We expect the Fed to continue to tilt to the side of caution during the process of policy normalization, delaying the first rate hike until later in 2015, and then raising rates only at a very gradual pace.

Reaccelerating economic growth, benign inflationary pressures, and a cautious Fed should contribute to a favorable environment for U.S. equities over the next few quarters.

Report highlights:

• The May Employment report showed a robust rebound, estimating the economy added 280,000 jobs for the month.

• Increases in payrolls were widespread and led by strong gains in Professional & Business Services, Education & Health Care, and Leisure & Hospitality.

• Information Services industries and Mining and logging industries do show job losses for the month.

• The unemployment rate ticked up to 5.5 percent as 397,000 new entrants to the labor force were added, pushing the participation rate up 0.1 percentage points to 62.9 percent.

• Other broader measures of unemployment/underemployment held steady or ticked down by 0.1 percentage points.

• Wage gains accelerated in May, rising 0.3 percent and 2.3 percent over the past twelve months.
• The combination of jobs gains and higher wages pushed the aggregate weekly payrolls index, a proxy for take-home wages, up 0.5% for the month and 4.9% over the year.