Are more people looking for a job or is the US labor market continuing to show continued tightness?
Investors eagerly awaiting an update on the US labor market will get more insight on Friday when Bureau of Labor Statistics publishes the employment status report for the month of May.
The latest labor market data suggest a slowdown in employment growth. The number of job vacancies fell by 296,000 to 8.059 million in April 2024, the lowest level since February 2021.
On Wednesday, the ADP Employment Report found that US private firms added 152,000 jobs in May, up from 188,000 in April and missing 192,000, according to Econoday.
“Job gains and wage growth are slowing as we enter the second half of the year,” ADP’s chief economist said. Nella Richardson. “The labor market remains solid, but we are monitoring the obvious weaknesses related to producers and consumers.”
In addition, employment sentiment in the Services sector contracted for the fifth time in six months, according to ISM data released on Wednesday, pointing to a potential downside risk for Friday’s payroll numbers.
- Economists forecast an increase in nonfarm payrolls from 175,000 in April to 195,000 in May, with estimates ranging from 151,000 to 225,000, according to Econoday.
- The unemployment rate is expected to remain stable at 3.9%.
- Average hourly earnings are forecast to show a slight monthly increase, rising from 0.2% to 0.3%, with the annual growth rate remaining steady at 3.9%.
| provision | April 2024 | May 2024 (consensus) |
Consensus range |
|---|---|---|---|
| Non-Agricultural Payrolls (M/M) | 175,000 | 195,000 | 151,000 to 225,000 |
| Unemployment rate | 3.9% | 3.9% | 3.8% to 3.9% |
| Average Hourly Earnings (M/M) | 0.2% | 0.3% | 0.2% to 0.3% |
| Average Hourly Earnings (Y/Y) | 3.9% | 3.9% | 3.8% to 3.9% |
“The May payrolls print is likely to show a healthy but more balanced labor market.” Bank of America economist Michael Gapen says a note.
Gapen expects nonfarm payrolls to rise by 200,000 in May, up slightly from April’s 175,000 but about 40,000 below the average gain over the past three months.
“Gold’s range for NFP is between 125,000-175,000,” Bank of America wrote. If the pace of employment growth comes in within that, it will be positive for the S&P 500, and traders should expect equity ETFs such as SPDR S&P 500 ETF Trust SPYto collect.
“Bad news has been good news for stocks over the past two months, but if growth deteriorates too much, bad news could turn into bad news,” the investment bank said.
Strong hiring in May could cause the unemployment rate to drop to 3.8%, with wages rising to 3.9% year over year.
“Overall, wage growth may have slowed in the past three months, but the layoff rate has not increased, keeping the unemployment rate near all-time lows,” Gapen said.
Bank of America maintained a hawkish view on the Fed’s monetary policy, forecasting the first rate cut no earlier than December 2024, followed by four 25-basis-point cuts in 2025.
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