US jobs report awaited; slowdown expected

Forecasters expect the US employment report for May will add new evidence the labor market is gradually cooling, even as hiring rebounded compared to April.

The figures, to be published Friday by the Bureau of Labor Statistics, are expected to show employers boosted payrolls by 180,000 last month, according to the median estimate in a Bloomberg survey. Average hourly earnings likely advanced 3.9% over the last 12 months, which would match the rate in April when wage growth hit its slowest mark in almost three years.

If forecasts prove accurate, the report would reinforce the view, supported by a wide range of recent data, that the US economy is stepping down a gear from the robust pace of growth seen last year, but not so much that Federal Reserve policymakers will feel rushed to consider interest-rate cuts.

“The May jobs report is unlikely to sway the Federal Reserve from its current wait-and-see posture, but it will provide further evidence that the labor market isn’t as strong as it was a year ago, and that it is converging towards a less inflationary balance,” EY Senior Economist Lydia Boussour wrote in a June 4 note to clients previewing the numbers.

Here’s what to watch for in key components of the report:

NONFARM PAYROLLS

Monthly payroll growth has been a robust 246,000 on average this year so far, feeding consumer spending that has helped keep inflation above the Fed’s target. Two consecutive reports showing still-healthy jobs growth, but well below that pace, would point to a more balanced labor-market dynamic.

“We think the labor market is normalizing, not necessarily weakening,” Michael Gapen, head of US economics at Bank of America Corp., wrote in a June 5 note to clients. “Job openings are coming down and employment growth is moderating, albeit from a elevated run rate, but the rate of job separation remains low.”

Payroll growth dropped to 175,000 in April, in part due to almost no net hiring in the public sector. Many economists expect a bounce back in government hiring in May. A typical seasonal spring pullback may have a downward pull on the number, but immigration is still expected to help by making more workers available, especially in the services and construction sectors.

HOURLY EARNINGS

Economists anticipate wage data, like the jobs number, to continue showing a gradual softening. The median estimate for average hourly earnings sees a 0.3% increase in May. That’s a tick above April’s pace, but on a 12-month basis wage growth is expected to come in at 3.9% for a second straight month.

LABOR FORCE

The unemployment rate is expected to remain unchanged in May at 3.9%. Joblessness has, however, moved up by half a percentage point since April 2023. Sam Coffin and colleagues at Morgan Stanley estimate the economy must create 265,000 jobs a month to keep up with population growth. That suggests more upward pressure on unemployment should hiring continue to slow. 

Economists foresee labor force participation remaining steady at 62.7%. The rate of participation among women between the ages of 25 and 54, however, bears watching. In the past four months, it’s jumped nearly a full percentage point.