May Jobs Data Preview: Could Another Hot Jobs Report Influence Fed's Next Actions?

The Bureau of Labor Statistics' much anticipated U.S. labor market report is due to be issued on Friday, attracting major interest from investors who are keenly tracking nonfarm payrolls (NFPs), the unemployment rate and average hourly earnings numbers.

These data points are very important since they will influence the Federal Reserve's future monetary policy decisions. This report is especially significant also because it is the last crucial data release before the inflation rate is announced on June 14, which corresponds with the next Federal Open Market Committee (FOMC) meeting.

What The Market Consensus Expects: Economists anticipate a decline in NFPs from 253,000 in April to 190,000 in May, according to the market consensus. None of the 69 analysts surveyed by Bloomberg expect May's NFPs to be stronger than last month's figure. It is worth mentioning, that the April figure far exceeded forecasts of 180,000.

Read Also: Labor Market Stays Tight: April Jobs Report Reveals Growth In Nonfarm Payrolls, Wages

The unemployment rate is anticipated to slightly tick up from 3.4% to 3.5%. As for average hourly earnings, analysts forecast a monthly growth rate of 0.3%, indicating a deceleration from April's 0.5% increase.

Heading To NFPs: How Is The Market Positioned? Recent signals from the American job market have been encouraging.

• The private ADP employment report, issued on Thursday, showed a significant rise of 278,000 employees in May, well above the projected 170,000. Unemployment claims were broadly in line with forecasts. 
• Based on early this week's forecast, the market initially expected the Federal Reserve to raise interest rates in June.
• Recent dovish statements from Federal Reserve members, especially Philip Jefferson and Patrick Harker, who have signaled a possible halt in tightening at the next meeting, have shifted the mood.
• According to the CME Group FedWatch tool, traders now predict a 22% likelihood that the Fed will raise rates by 0.25% in June.
• Risky assets surged on Thursday, while the dollar fell. The SPDR S&P 500 ETF Trust SPY soared 1.2%, reclaiming its 2023's high. 

Economists' Latest Takes on the May Jobs Report: Priscilla Thiagamoorthy, senior economist and vice president at BMO Economics, forecasts a 200,000 job surge in May, adding the Fed wants to see better balance in the job market, as conditions remain tight.

• ING Groep N.V. thinks that if the report matches consensus expectations, the market will continue to anticipate that the Fed will pause in June while keeping the door open for a potential July rate rise. Higher-than-expected job growth of more than 250,000, along with a 0.4% monthly pay rise and a 3.4% unemployment rate, might push expectations toward a 50:50 possibility of a June hike.
• When examining the latest ADP employment data, BNP Paribas identified some industry-level inconsistencies in comparison to BLS numbers. Analysts highlighted strong employment increases in the mining and leisure and hospitality sectors, as well as losses in a variety of other service areas, which historically indicated a downside risk to payrolls when compared to the ADP result.
• Comerica Bank predicted 175,000 NFP gains in May, slightly lower than consensus, with the unemployment rate increasing to 3.5% and average hourly wages climbing 0.3% month on month, in line with expectations. Comerica Bank (Dallas, Texas) chief economist Bill Adams argued labor supply has been steadily increasing in the previous year, while labor demand has begun to decrease, indicating a change to a more balanced labor market dynamic.

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Photo: Courtesy Federal Reserve