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The number of U.S. jobs added in May is expected to moderate from recent months as the Federal Reserve hikes rates to cool the economy in its mission to bring down inflation.
Economists estimate that 325K jobs were added in May, down from the 428K increase in April. The unemployment rate is expected to improve slightly to 3.5% from 3.6% in April.
“We’ve enjoyed 12 consecutive months of payroll growth north of 400,000, but that streak is close to an end,” said Bankrate Chief Financial Analyst Greg McBride. “Job growth will continue but at a more modest pace in the months ahead as the Federal Reserve works to slow the economy and corral inflation.”
Evercore ISI expects a 300K gain for May. “Layoffs are increasing, particularly in the tech space, and net job growth should slow further,” said Evercore’s Stan Shipley in a note dated Tuesday.
Allie Kelly, chief marketing officer at Employ Inc., agrees with that number, noting she expects the May report to reflect the lowest growth in the recovery. The recruiting firm has seen a slight drop off in the growth of job openings. But the number of job openings relative to the number of unemployed people is still “massive,” she said.Nonfarm payrolls from 1999-March 2022
Keep in mind that the strong growth in the number of jobs in the past couple of years was digging out of the hole caused by the pandemic in March and April 2020, when 22M people lost their jobs. Those jobs have largely come back. According to the U.S. Bureau of Labor Statistics, the number of long-term unemployed people was 1.5M in April, little changed from March but 362K higher than February 2020.
Economists will be keeping an eye on the labor participation rate, which has stayed below prepandemic levels — April’s 62.2% rate is 1.2 percentage points lower than the February 2020 level.
The unemployment rate, at 3.6% in April, is near 50-year lows. Its trajectory will depend on whether workers come off the sidelines, McBride said. “With almost two open jobs for every unemployed worker, seeing the labor force participation rate get closer to prepandemic levels would be a welcome sight,” he said.
Economists and investors will be looking at wage growth to see if it indicates slowing inflation. In April, average hourly earnings were $31.85, up 0.3% from the previous month and up 5.5% Y/Y. Evercore’s Shipley estimates that hourly earnings increased 0.4% M/M.
From Employ Inc.’s viewpoint, “wage growth has slowed very slightly,” Kelly said. And even before that, wage growth wasn’t keeping up with inflation, she said.
Month-to-month numbers can be volatile, though, and the Bureau of Labor Statistics will revise data from the previous two months. So it’s better to take a longer-term view of the data. The three-month average increase in nonfarm jobs was 523K in April, 549K in March, and 602K in February.
While not a reliable predictor of the BLS jobs numbers, ADP’s jobs report shows a gain of 128K jobs in May, lower than the 240K consensus. That furthers the narrative that job gains will decelerate.
With some economists and strategists ratcheting up the odds for a recession as the Federal Reserve tightens monetary policy to cool demand, Employ’s Kelly isn’t seeing any major impact yet. She’s seeing “a lot of speculation on layoffs and hiring freezes, but it’s not across the board… Job growth is still growing, slowing from what it was, but still growing.”