Job growth in May is expected to be more than double the pace of April, with hiring picking up in pandemic hit sectors like retail and restaurants but also more broadly across the economy.
Economists expect 671,000 jobs were added in May, up from 266,000 payrolls in April, about a quarter of what was expected, according to Dow Jones. The unemployment rate is expected to slip to 5.9% from 6.1% in April. Average hourly wages are expected to increase by 0.2%.
The monthly employment report could be important in setting the stage for the Federal Reserve’s June meeting, where some strategists believe there’s a chance the central bank could signal how close it is to discussing tapering its bond buying program.
While jobs data has been weaker than anticipated, market pros have been watching hotter than expected inflation data as a sign that the Fed may have to react at some point.
“May jobs data will be a key factor in determining the path of Fed policy in coming months,” noted Citigroup economists. They forecast 760,000 jobs for May and said a repeat of April’s weak report could mean the Fed will not taper back its bond purchases until sometime next year.
“However, a stronger increase (+1mln) would keep the June FOMC meeting on the table for a possible signal ‘well ahead’ of tapering later this year,” the Citigroup economists wrote. At this point, they expect the Fed to discuss the slowing of bond purchases at or before its Jackson Hole symposium at the end of August.
The Fed buys about $120 billion of Treasurys and mortgage securities each month, and has said it would slow down the purchases and end them before raising interest rates. Even committing verbally to winding down the purchases would be seen as a first step on the long road toward increasing interest rates.
The May jobs report comes after some encouraging signs for the job market despite April’s disappointing results. First-time unemployment claims fell to 385,000 last week, the first report below 400,000 since March 2020. ADP said its private sector payrolls rose by 978,000 in May, well above the consensus forecast of 680,000.
Barclays chief U.S. economist Michael Gapen said he expects 675,000 jobs, but he said it wouldn’t be surprising if it was widely higher or lower. “I think the honest answer is nobody knows. There’s a lot of uncertainty around this jobs report,” he said.
“The three months average was running at 525,000. It’s likely labor market conditions were a little better than they were on average so we should expect some improvement in May,” Gapen said. “We look for an incremental improvement in the hiring rate in May, and that’s a function of things opening up. There’s a lot of job postings and at some point people have to come back.”
Gapen said the jobs report will help frame the debate about Fed policy.
Reference: CNBC
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