Here’s what to watch out for in Friday’s jobs report for May

Watching the monthly jobs reports this year has been an exercise in waiting, as economists and market participants look for an economic downturn that doesn’t look like it will ever happen.

This scenario is likely to be repeated on Friday when the Labor Department releases the non-farm payrolls number for May. Economists surveyed by Dow Jones expect job growth at 190,000 jobs, a slowdown from the 253,000 jobs added in April, below the 2023 monthly average of 284,500 and the lowest monthly gain since December 2020.

But judging by the way these reports have been going, the risk is likely to be to the upside in a job market that is nothing if not resilient. The number of jobs has exceeded consensus estimates 13 of the 16 times since January 2022.

said Joseph LaVorgna, chief economist at SMBC Nico Securities America. “I would tell people to focus in any direction.”

To what extent the headline numbers were defying market expectations, LaVorgna sees some underlying weakness.

the total Employment opportunities rose in April to 10.1 million, but the pivotal leisure and hospitality industry actually posted a drop of nearly 6%, according to Labor Department data released Wednesday. This could be bad news for a sector that created more than 900,000 jobs over the past year.

Also, the April Nonfarm Payrolls report showed that the estimates for job growth for the previous two months were cut by 149,000, indicating that the picture earlier this year was not quite as strong as we initially indicated.

“Right now, we’re approaching an inflection point,” said LaVorgna, chief economist for the National Economic Council under former President Donald Trump. “I don’t think it’s going to happen in May, but given the amount of tightening in the economy that the Fed has engineered, and given that lending standards are getting more and more restrictive, the labor market should weaken. History tells us when that happens, it happens quickly.”

The tight labor market and pressure on wages and inflation have bedeviled the Federal Reserve. The central bank has raised interest rates 10 times since March 22, only to see inflation remain well above the Fed’s 2% target.

However, policymakers have indicated that they may be willing to skip hiking again when they meet later in June, as they look to see how all the policy tightening has affected conditions.

“The decision to hold the interest rate steady at an upcoming meeting should not be interpreted to mean that we have reached the peak rate for this cycle,” said Fed Governor Philip Jefferson. he said in a speech Wednesday. In fact, skipping a rate hike at an upcoming meeting would allow for [rate-setting Federal Open Market Committee] To see more data before making decisions about the stability of additional policy.

One area that policymakers will focus on is average hourly earnings.

Wages are expected to rise 0.3% for the month and 4.4% from a year ago, a level officials said was incompatible with a return to a 2% inflation rate. However, it could bring some good news in this regard.

Data from Homebase shows that wages for small and medium businesses fell 0.2% in May, the first monthly drop since 2021. That came even as a 0.64% increase in working staff and a 1.16% increase in hours worked.

Payroll processing company ADP reported Wednesday that wages for workers who stayed put rose 6.5% in May, still high but slowing from previous months. ADP also said private payrolls expanded at a higher-than-expected rate of 278,000 in May.

A Federal Reserve report on Wednesday noted that wages grew “modestly,” which is in line with the rest of the notes “The Beige Book” It was about the jobs economy.

“Overall, the labor market continued to be strong, with contacts reporting difficulty finding workers across a wide range of skill levels and industries,” the report said, noting that some employers said they were “full staff” and some reported that they were pausing hiring. “. or reducing staff numbers due to weak actual or projected demand or increasing uncertainty about the economic outlook.”

The unemployment rate in May was expected to rise to 3.5%, which would still be near the lowest level since 1969.