WASHINGTON (DTN) -- Following equities lower, crude and petroleum products futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange softened in early trade Monday after the slower-than-expected pace of U.S. job growth over the last two months added to concerns over rising inflation in the post-pandemic labor market, while traders await the release of the key reading on consumer prices this week for additional clues on the inflationary pressures in the world's largest economy.
Friday's nonfarm payroll report showing 559,000 jobs were added in the U.S. economy in May disappointed market expectations for a second month, while the slower-than-estimated pace of new jobs has the market anticipating the Federal Reserve would maintain its monetary policy despite the risk of rising inflation.
With economy growing at an estimated rate of 10.3%, according to the Atlanta GDP Now tracker, the decline in the labor participation rate to 61.6% -- the lowest since the late 1970s -- suggests some hesitance or unwillingness among Americans to rush back into the workforce. Currently, there are still about 7.6 million jobs missing compared to pre-pandemic levels despite a record-breaking 8.1 million open positions listed in May, according to the latest Job Openings and Labor Turnover Survey. This, in turn, boosts wages -- something that economists refer to as sticky inflation, as employers scramble to find available labor. Last month, average hourly earnings rose to $30.33 from $30.18 in April and $29.74 in May 2020, offering evidence of increased pay across the economy.
The "down the middle" jobs report, meanwhile, eased some concern over the Federal Reserve lifting its near-term interest rates and scrapping $120 billion a month purchases of bond and mortgage backed securities.
Commenting on May's employment report, Cleveland Federal Reserve President Loretta Mester said, "I view it as a solid report, but I would like to see further progress."
Officials with the central bank have repeatedly stated that it would not scrap its monetary easing policy until it sees "substantial progress" in the labor market even if inflation ticks higher.
The Commerce Department will publish May's consumer price index on Thursday, following last month's decade-high jump of 4.2%, in what could be the sternest test yet to the Fed's "transitory" inflation narrative. Market consensus calls for May's CPI to increase to 4.6% year-on-year.
U.S. Treasury Secretary Janet Yellen shrugged at inflation worries as she pushed the case for President Joe Biden's $2.3 trillion infrastructure plan, telling reporters over the weekend that, "We've been fighting inflation that's too low and interest rates that are too low now for a decade," adding that, "we want them to go back to" a normal interest rate environment, "and if this helps to alleviate things a little bit then that's not a bad thing -- that's a good thing."
The debate around rising inflation has intensified in recent months, between those who argue that current price increases are being driven by short-term distortions created by the pandemic -- such as supply-chain bottlenecks and a surge in spending as economies reopen -- and critics who say trillions in government aid could fuel a lasting spike in costs.
This week, House Democrats will start a process of preparing an infrastructure bill for a vote in the U.S. House of Representatives after Biden rejected counteroffer legislation from Republicans of $928 billion. Biden's original infrastructure plan had a price tag of $2.3 trillion, which has since been lowered to $1 trillion.
White House wants to raise corporate taxes to generate revenue for infrastructure investments, a nonstarter for Republicans. GOP senators propose tapping unspent COVID-19 relief aid to pay for upgrading roads, bridges and other projects, an idea rejected by Democrats. Regardless of the final composition, the infrastructure bill is seen underpinning support for commodities such as oil, copper, and lumber.
In early trading, NYMEX July West Texas Intermediate futures softened 15 cents to $69.46 per barrel (bbl) and ICE August Brent crude futures slipped to $71.70 bbl. NYMEX July ULSD futures fell 0.60 cents to $2.1140 gallon, with July RBOB futures were down 0.81 cents at $2.2034 gallon.
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