CNBC's Rick Santelli joins 'Squawk Box' to break down the May jobs report. U.S. payrolls increased by 139,000 and the unemployment rate is at 4.2%.

Washington

U.S. non-farm payrolls increased by 139,000 in May, surpassing market expectations. The unemployment rate remained unchanged at 4.2%. However, revisions to previous months' data resulted in a net loss of 95,000 jobs. Average hourly earnings rose by 0.4% month-over-month and 3.9% year-over-year, both higher than anticipated. The labor force participation rate dropped to 62.4%, marking its lowest point since early 2023, and the underemployment rate (U6) held steady at 7.8%. Interest rates saw modest increases, and equity markets responded positively to the report.

U.S. payrolls increased 139,000 in May, more than expected

Absolutely. Now ADP doesn't necessarily correlate highly but it's something to pay attention to. 139,000 jobs created on non-farm payrolls for the month of May, a smidge higher than we were expecting. And in the rearview mirror, well there are some revisions. We lose 95,000 over the last two months. All right, let's proceed now with the unemployment rate, which remains at 4.2%. If we look at the earnings from a month-over-month perspective, it comes in up four-tenths, up four-tenths, much better than expected. We were looking for up three-tenths. In the rearview mirror, at least up to this point, I don't see revisions, up four- tenths. That would equal January of this year, which was the best read to find a higher rate. You're back in August of last year. Now let's look at average hourly earnings on a year-over-year basis. Hotter than expected, 3.9. That's a couple of tenths better we're looking for. One-tenth higher than the 3.8 in the rearview mirror. That equals the first two months of the year, which were the highest. To find a higher number, you're going to Dece of last year when it was 4%. Average weekly hours worked, and we want to always pay close attention to this. 34.3 is wild. It's the rearview mirror, it's the windshield, it's what we arrived at this time around this month, and that means we have three 34.3s in a row, which is building. It was 34.1 and 34.2 in Jan and Feb, respectively. Labor force participation rate, always a welcoming event. We want to bring more people in. It comes in at 62.4. This is a miss. This is the first real miss. That's a couple-tenths light, both in the rearview mirror and against expectations. It equals the lightest read of the year, which was in February. To find a lower number, you're going all the way back to the last month of 2022. And finally, drumroll please, we're going to look at what I call U6, the underemployment rate, because the actual employment rate I already gave you, 4.2, is considered the U3. So U6 comes in at 7.8. That means that we have back-to-back 7.8s. The lowest read was 7.5. That was January of this year. Interest rates are moving up. Listen, $139,000 isn't off-the-chart strong, but it's stronger than the market was looking for, and even though you can say that we're losing a bit of steam on job creation, what you can say is that you cannot say that it's happening quickly, and you cannot say it isn't accompanied by a mixed bag of other economic fundamentals. Some point to slower glide path, some point to better glide path. Interest rates on the week, and this is important, a two-year close to 390 last week, so we're basically up close to six basis points. A ten-year close to 441 last week. It's basically up two basis points. Pre-opening equities, they like this number. Back to you.

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Breakdown