Preview For The May 2024 US Jobs Report

Headline nonfarm payrolls are set to have risen by +185k last month, just a touch above the +175k pace notched in April, with a print in line with consensus set to bring the 3-month average of job gains to +225k, a YTD low, pending revisions to the prior 2 releases. Importantly, both the May consensus figure, and the aforementioned 3-month average, would at that point be a touch below the ‘breakeven’ pace of job growth required for employment gains to keep up with growth in the size of the labour force. However, as always, the range of estimates for the headline payrolls print is a wide one, from +120k to +258k.

Leading indicators for the headline payrolls print paint a relatively mixed picture. Both initial and continuing jobless claims were, as near as makes no difference, unchanged between the April and May survey weeks, though the 4-week moving average of initial claims has continued to steadily rise, now standing at its highest level since last September. Meanwhile, the May ISM PMI surveys showed manufacturing employment increasing once more, with the employment sub-index rising to 51.1, from 48.6. For the services metric, employment continued to contract on the month, albeit at a slower pace, with the relevant sub-index rising to 47.1. As always, the ADP employment report, which printed +152k, is best ignored.

Finally, a gauge that has tracked payrolls growth well this cycle remains the NFIB hiring intentions survey, advanced by a quarter or so. This metric points to a further slowdown in hiring in May, and potentially even a private payrolls print below +100k.

Sticking with the establishment survey, the May employment report should show a modest quickening in the pace of average hourly earnings growth, likely ticking higher to 0.3% MoM, from a prior 0.2% in April. In turn, this is likely to leave the YoY pace of earnings growth unchanged at 3.9%; a pace that represents modest real earnings growth, but one that is slowly but surely becoming increasingly compatible with a return to 2% inflation.

Meanwhile, turning to the household survey, elevated levels of data volatility should persist, with immigration remaining something of a wildcard, making this part of the employment report somewhat harder to forecast than is typically the case. This is especially true when one considers that the impact of said rising immigration is still unlikely to be fully represented within the data.

In any case, headline unemployment should remain at 3.9% in May, a level equal to the highest since early-2022, albeit one that continues to – effectively – imply full employment, and a labour market that remains relatively tight. Labour force participation should also emphasise this point, expected to remain unchanged, just shy of cycle highs at 62.7%.

On the whole, the message from the May jobs report is likely to be one of continued normalisation, with headline jobs growth slowing, earnings growth remaining relatively cool, albeit at a time when the US economy remains, for all intents and purposes, at full employment. Broadly speaking, this is the message that has been sent by the last couple of labour market reports, hence should come as little surprise to either market participants, or to policymakers.

Speaking of which, the policy implications of the May report – barring a significant downside surprise – are likely to be relatively limited. As has been the case for some time, though risks to the Fed’s dual mandate continue to come back into better balance, it is the inflation side of said mandate that continues to take precedence in determining the timing of the first rate cut, with policymakers continuing to seek “confidence” in a return towards target, and likely to reiterate such a message at the conclusion of the June FOMC meeting. Consequently, this, as well as the May CPI figures also due on 12^th June, are likely to lead to a more prolonged and significant market reaction than the May jobs report.

As a result, any reaction to the jobs report is likely to be relatively short-lived, particularly as a hotter than expected slate of data is unlikely to force the Fed’s hand in a more hawkish direction, while markets price just 44bp of cuts this year in any case. On the other hand, even a cooler than expected report is unlikely to cause much more than a knee-jerk, brief, dovish reaction, given Chair Powell’s prior rhetoric that “a couple of tenths” of rise in the unemployment rate would not meet the bar to elicit a policy response.