US Economy: Weekly Commentary – June 08, 2026

US Market Review

Treasury yields rose on strong jobs data, markets price Fed hike risk. Equities fell broadly, led by tech. Dollar up, oil up, gold down, bitcoin slightly higher.

US Treasury yields rose sharply during the week. The market reaction to the latest U.S. Jobs Report pushed yields higher across the entire curve, with markets now fully pricing in a Federal Reserve rate hike by year-end. At the same time, Treasury funding is becoming increasingly dependent on shorter-term securities, heightening rollover risk. With U.S. public debt approaching historic highs, this combination represents a significant non-geopolitical financial vulnerability, leaving the system increasingly exposed to shocks. It also raises concerns about emerging systemic risks within the Treasury market.

Equity markets ended the week notably lower across all market capitalizations. Micro-caps led the decline, falling more than 5%, followed by small-caps, which lost slightly over 3%, while large-caps declined 2.60%. The Nasdaq 100 dropped 4.8% on June 5, marking its steepest one-day decline since Liberation Day. The “Magnificent 7” fell 5.80%. Sector performance was similarly weak, with technology leading losses at 5.60%, followed by consumer discretionary, down 5%. In contrast, a handful of sectors posted gains, led by energy, up 2.45%, and healthcare, which advanced 2.40%.

In currency markets, the U.S. dollar appreciated 1.19% against the euro. Commodity markets experienced heightened volatility, with WTI crude oil rising 2.84% amid renewed Middle East tensions. Iranian missile strikes, U.S. military action, and stalled U.S.–Iran negotiations intensified concerns over potential supply disruptions and reduced expectations for de-escalation. Additional support for oil prices came from fears of restricted flows through the Strait of Hormuz, declining U.S. crude inventories, and warnings from the International Energy Agency regarding critically low global stockpiles ahead of peak summer demand. Meanwhile, gold declined 4.73%, while bitcoin gained 1.0%.

US Market Views Synopsis

US jobs beat expectations with 172k gains, but growth is narrow. Full-time jobs fell, part-time rose, wages eased. Fed hike expectations increased amid persistent inflation.

US labour market data for May came in materially stronger than expected, with non-farm payrolls rising by 172,000 versus forecasts of around 88,000, supported by upward revisions of 93,000 to prior months. Private payrolls increased by 120,000 and government employment by 52,000, while the household survey showed employment up by 149,000 and unemployment steady at 4.3%. Despite headline strength, job quality weakened, with full-time employment falling by 79,000 to its lowest level since December 2024 and part-time work rising by 266,000, signalling a shift toward less secure employment. Wage growth also eased to 3.4% from 3.6%, indicating softer earnings momentum amid persistent inflation. Job gains remained highly concentrated in leisure and hospitality, government, and healthcare and education, while most other sectors contributed little, reinforcing narrow labour market breadth. Divergence between official data and weaker private indicators such as ISM surveys and job postings continues to cloud the underlying picture. Against this backdrop, expectations for a Federal Reserve rate hike before year-end have strengthened, as inflation persistence and labour resilience limit policy flexibility. Business activity remained in expansion, with ISM manufacturing at 54.0 and services at 54.5, driven by demand strength, inventory rebuilding, and front-loading of orders, though rising input costs, supply constraints, and cautious hiring suggest an increasingly inflation-driven expansion.

Labour Market

US jobs data beat expectations with 172k gains, but growth remains narrow. Full-time employment fell. Wages eased. Fed rate hike expectations strengthened amid persistent inflation.

US economic data for May came in materially stronger than expected, with non-farm payrolls rising by 172,000 versus consensus forecasts of around 88,000, reinforcing the view of continued labour market resilience despite an inflationary backdrop that continues to complicate the Federal Reserve’s policy outlook. The report also included sizeable upward revisions of 93,000 to prior months’ data, strengthening the near-term momentum signal. Private payrolls rose by 120,000, while government employment increased by 52,000. The household survey broadly confirmed the resilience in headline figures, with employment rising by 149,000 month-on-month and the unemployment rate unchanged at 4.3%. However, beneath the surface, labour market quality showed further signs of softening, with full-time employment declining by 79,000 to 134.173 million, its lowest level since December 2024, while part-time employment rose sharply by 266,000 to 28.679 million, suggesting a shift toward more precarious or flexible work arrangements. Wage growth also eased to 3.4% from 3.6%, indicating moderating earnings momentum at a time when inflation pressures persist, raising concerns about ongoing real income erosion for households.

At a sector level, job creation remained highly concentrated, with gains once again driven primarily by leisure and hospitality (+70,000), government hiring, and private education and healthcare services. This meant that most other sectors including manufacturing, technology, energy, retail, logistics, financial services and business services contributed little to no net job growth, reinforcing the broader theme that labour market strength is narrow rather than broad-based. The divergence between official employment data and softer private-sector indicators remains a key tension, with business surveys such as ISM pointing to weakening employment conditions, while layoff announcements and job postings data from sources like Challenger and Indeed continue to trend lower. Against this backdrop, expectations for a Federal Reserve rate hike before year-end have strengthened, as persistent inflation combined with a still-firm labour market limits policy flexibility, and the report also complicates the case for a more dovish policy stance, including for figures such as Warsh, whose preferred easing trajectory now appears increasingly difficult to justify.

We expect that US labour market strength will persist in headline terms but remain narrow in scope, with weakening job quality and softer wages. This should keep the Fed cautious, with rates likely higher for longer.

Business Activity

U.S. manufacturing and services expanded in May, driven by stronger demand and inventory rebuilding. Rising energy costs and supply constraints intensified inflationary pressures across sectors.

U.S. manufacturing extended its expansion into a fifth consecutive month in May 2026, with the ISM Manufacturing PMI rising to 54.0, supported by broad-based gains in new orders (56.8) and production (54.3), alongside a return to growth in export demand (50.6), signalling improving underlying demand momentum and continued inventory rebuilding as customers’ inventories remain “too low,” which is helping sustain near-term output. However, the recovery remains uneven, with employment still in contraction at 48.6 despite modest improvement, indicating ongoing labour caution, while supplier deliveries slowed further, reflecting persistent supply-chain frictions. Price pressures remain a key constraint, with the ISM Prices Index at 82.1, historically elevated, driven by higher energy and metals costs, tariff-related inputs, and geopolitical disruptions, suggesting the expansion is increasingly being shaped by inflationary pressure and constrained supply conditions rather than broad-based capacity or hiring growth.

The U.S. services sector accelerated in May as stronger demand and a sharp rise in inventories pointed to firms front-loading orders amid concerns over supply disruptions and rising input costs linked to Middle East tensions, with the services PMI increasing to 54.5 from 53.6 and exceeding expectations. Inflationary pressures intensified, with the prices-paid index climbing to a near four-year high on higher petroleum and broader energy-related costs, while new orders rose sharply to 57.3 from 53.5 and inventories surged to 62.5, the highest in more than a decade, reflecting aggressive restocking following earlier drawdowns. Growth remained broad-based across 17 industries, including wholesale trade, construction, retail, utilities, and hospitality, with only real estate and leasing contracting, while survey respondents pointed to emerging bottlenecks in materials, equipment, and electronics and greater difficulty passing through input costs. The Federal Reserve’s Beige Book similarly highlighted rising energy-driven inflation pressures feeding into shipping, packaging, food, and fertilizer costs, leaving financial markets cautious as equities softened, the dollar strengthened, and Treasury yields rose amid renewed focus on inflation dynamics and the policy outlook.

We expect U.S. manufacturing and services to maintain expansion in the near term, supported by resilient demand and ongoing inventory rebuilding, though elevated energy costs, persistent supply constraints, and tariff-related pressures are likely to keep inflation elevated and may limit the pace of growth ahead.