Are more people looking for a job or is the U.S. labor market continuing to show continued tightness?

Investors eagerly awaiting an update on the U.S. labor market will get more insight on Friday when the Bureau of Labor Statistics releases the employment situation report for May.

Recent labor market data suggests a slowdown in employment growth. The number of job vacancies dropped by 296,000 to 8.059 million in April 2024, the lowest level since February 2021.

On Wednesday, the ADP Employment Report revealed U.S. private firms created 152,000 jobs in May, down from April’s 188,000 and missing the expected 192,000, according to Econoday.

“Job gains and pay growth are slowing as we enter the second half of the year,” said ADP chief economist Nela Richardson. “The labor market remains solid, but we’re monitoring notable weaknesses tied to both producers and consumers.”

Additionally, employment sentiment in the Services sector contracted for the fifth time in six months, according to ISM data released Wednesday, indicating a potential downside risk to Friday's payroll numbers.

May Jobs Report Preview: What Economists Expect

• Economists predict 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 steady at 3.9%.

• Average hourly earnings are forecasted to show a slight monthly increase, rising from 0.2% to 0.3%, with the annual growth rate holding steady at 3.9%.

Measure	April 2024	May 2024 (consensus)	Consensus range
Nonfarm 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%

Bank Of America Expects A “Healthy” Jobs Report

“The May payrolls print is likely to show a healthy but better-balanced labor market,” Bank of America economist Michael Gapen said in a note.

Gapen expects nonfarm payrolls to rise by 200,000 in May, a small increase from April’s 175,000 but about 40,000 lower than the average gain over the past three months.

“The goldilocks range for NFP is between 125,000-175,000,” Bank of America wrote. If the pace of employment growth comes within this it will be positive for the S&P 500, and traders should then expected equity ETFs, such as the SPDR S&P 500 ETF Trust SPY, to rally.

“Bad news has been good news for equities over the past two months, but if growth deteriorates too much, bad news can turn into bad news,” the investment bank stated.

Strong hiring in May could likely cause the unemployment rate to edge down to 3.8%, with wage growth holding at 3.9% year-over-year.

“Overall, payroll growth may have slowed in the last three months, but the layoff rate has not picked up, keeping the unemployment rate near all-time lows,” Gapen said.

Bank of America maintained a hawkish view on Fed monetary policy, predicting the first rate cut no earlier than December 2024, followed by four 25bp cuts in 2025.

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