The US jobs report will be released at 8:30 AM EST tomorrow.
Last month (April), payrolls reached 175,000 which was well below the estimate of 243,000 at the time. The previous month's revision was -22k.
Other details from the April report showed:
- Unemployment rate 3.9% vs. 3.8% expected (3.8% previously)
- Participation rate was 62.7%, compared to 62.7% previously
- U6 underemployment rate is 7.4% versus 7.3% previously
- Average hourly earnings +0.2% per month vs. +0.3% expected (+0.202% not rounded)
- Previous average hourly earnings +0.3% per month
- Average hourly earnings are +3.9% YoY vs. +4.0% expected
What's to expect for May?
- Nonfarm Payrolls Estimates 185k (vs. 175k)
- Private payroll, 170,000 vs. 167,000 last month.
- Manufacturing payrolls, 5k vs 8k last month
- The unemployment rate is 3.9% compared to 3.9% last month
- Average monthly earnings were 0.3% compared to 0.2% last month
- Average year-over-year earnings are 3.9% versus 3.9% last month
- Average work week (hours) 34.3 compared to 3.4% last month
- Labor Force Participation Rate: No estimate vs. 62.7% last month
- Underemployment U6: No estimate vs. 7.4% last month.
Looking at some of the employment data released so far:
- ADP Employment changed by 152K vs. 173K estimate. The previous month was revised to 188k from 192k. minimum
- ISM Manufacturing PMI 51.1 vs. 48.6 last month. Above and above 50.0 (expanding)
- The ISM Non-Manufacturing Employment Index was 47.2 compared to 45.9 in April. Above but below 50.0 (contracted)
- JOLTs: 8.06 million vs. 8.37 million estimate. The lowest and lowest level since February 2024.
- Challenger layoffs 63,816 thousand compared to 64,789 thousand last month. Little has changed, but it is below the 2024 high of 90.39K
- MA 4-Week Initial Jobless Claims 222.25K. Highest levels since September 2023. Highest levels since fall after pandemic reached 253,000. The lowest level was at 197 thousand.
Fed officials were cautious in large part because of the strength in jobs. However, last month was a shot across the bow of the slowdown. The NFP was at its lowest level since October 2023 and near the lows of the recent range. However, one month does not constitute a trend. A slower gain like the 175K estimate will likely be good enough to keep the Fed in wait but be confident a soft landing is still ahead. It also has two lagging numbers which helps in controlling inflation.
If the number is less than 125K, it may raise some concern in the markets that the downside will be more difficult. The good news is that it will push the Fed to ease sooner and make traders believe that 2-3 cuts may still be in place with half the year remaining (if inflation can move lower as well of course). The bad news is that traders – especially in stocks – may be spooked by the prospect of lower growth in the short term at least for the most vulnerable sectors of the economy.
A stronger number (>225k) will likely send returns higher again. This week, yields fell by -35 basis points or so. A correction of the declines would be in order and would likely hurt stocks at least temporarily especially at record levels.
Something between 125K to 225K may be the sweet spot that keeps the Fed afloat but gives traders confidence that the economy is still moving forward at a steady pace.