The blockbuster US jobs report released Friday showed the nonfarm payroll increased by 172,000 in May, almost double market expectations of 85,000. This reading signaled that the US labor market no longer relies solely on the healthcare sector to create new jobs, as local governments and the leisure and hospitality industry also added a significant number of jobs.
One popular theory for the surge in leisure and hospitality payroll is that hotels, bars and restaurants were starting to boost their manpower in preparation for the upcoming World Cup, which is co-hosted by the US, Canada and Mexico and will kick off this Thursday (June 11).
The 70,000 growth in the leisure and hospitality industry—which comprises businesses including accommodation, food services, performing arts and spectator sports—was exceptional; it was the strongest since Feb 2023, or since Sep 2019 if we exclude the pandemic period.
Actually, a similar job boom was also observed in the May jobs report for Canada, also published Friday. Statistics Canada has a different industry categorization compared to the BLS, so we have to look at two data series. Accommodation and food services saw a 17,000 increase in employment while the information, culture and recreation sector, which houses the spectator sports industry, also booked 19,000 new jobs.
Combined with the fact that employment growth was concentrated in Ontario and British Columbia, the only two provinces to co-host the World Cup, there are plenty of hints suggesting the once-every-four-year football tournament had a stimulating effect on the North American labor market.
The look-through question
The important question, however, is this: shouldn’t the central banks look through such a one-off, short-term employment boost?
The standard principle of look-through policy is based on the so-called long and variable lag of the monetary policy impact. Fed Governor Michelle Bowman recently explained that:
As I mentioned earlier, monetary policy actions take time to work their way through the economy. Therefore, looking through temporary inflation shocks may be appropriate to achieve optimal policy, as long as doing so does not affect our credibility to bring inflation back to 2 percent.
The same principle applies to labor shocks: if the entire World Cup employment boost is just short-term, should the market worry about the prospect that a rebounding jobs market will force the Fed to hike rates faster than previously expected?
The picture without the boost
One way to look at it is to exclude the leisure and hospitality employment boost from the overall nonfarm payroll figures.
As shown above, the ex-leisure & hospitality figure of 102,000 jobs still comfortably beats the market expectations of an 88,000 payroll increase. Moreover, the picture of three consecutive months of strong job creation is still intact. So, the argument that the Fed may have a more urgent need to increase interest rates in the face of Iran War-induced inflation still stands.
(Arguably, some of the payroll created by the local governments last month, which totaled 55,000 jobs, may also be related to the preparation for the World Cup. But it’s harder to get a clear picture there, so we can only speculate.)
Similarly, the May job market rebound in Canada was also broader than merely the World Cup-related industries.
Hence, even looking through the World Cup boost, the overall labor market picture remains largely unchanged. The US is enjoying a labor market re-acceleration while its northern neighbor is seeing initial signs of employment stabilizing.
