Employers likely added jobs at a slower but steady pace last month, as rising interest rates weigh on hiring and the labor market moves back toward its prepandemic normal.
Economists expect to see that the U.S. economy added 192,000 jobs in May, consensus forecasts from
FactSet
show, marking a step down from April’s pace of 253,000 jobs. Economists also expect the unemployment rate to tick up just slightly, to 3.5% from April’s 3.4%.
The Labor Department won’t release the May data until 8:30 a.m. Eastern, but any report that comes in roughly in line with expectations would reflect a healthy labor market, with job growth moderating but still outpacing the level needed to keep up with population growth. This would bring the three-month average in job growth to just over 200,000 openings, a level somewhat higher than the roughly 190,000 jobs a month added on average in the year ending February 2020, just before the pandemic hit.
But when viewed in combination with other recent economic data that shows rising layoffs and less workers quitting their jobs, it becomes increasingly clear that the labor market—after soaring for more than two years—is steadily falling back to Earth.
“The job market is still quite solid, but not red-hot like a year ago,” says Bill Adams, chief economist with Comerica Bank.
For the Federal Reserve, that’s all good news: The central bank has long been worried that the labor market will have to soften somewhat in order for inflation to fall back in line. A mild slowdown in growth will be easier for the economy to handle than a sharp rise in unemployment.
The Fed will be focusing in particular on the May jobs report’s average hourly earnings data, which officials have long wanted to see fall to reduce upward pressure on prices. Economists tracked by FactSet estimate that wages rose 0.3% last month, down from April’s surprise 0.5% jump, and held steady at an annual growth rate of 4.4%.
“There’s no winning for the Fed on this one,” Dan North, senior economist with Allianz Trade North America, wrote of the wage data. “It’s still below inflation which means wage earners are still underwater, which is a terrible societal ill, but it is still high enough for it to be a concern as a source of inflation.”
The jobs report comes less than two weeks before the Fed’s policy-making arm will meet again to decide whether to hold interest rates steady at the current 5%-5.25% range, or to raise them by another quarter-point as they work to rein in inflation.
Recent commentary from officials suggests the committee likely favors holding rates steady in June but is looking to raise them in July, once it is able to look at more economic data. Investors as of midday Thursday were currently pricing in a 73% chance of no change in the federal-funds rate at the June meeting.
A jobs report that meets expectations, or even comes in slightly softer, would bolster that view. But a hotter-than-expected print—particularly on the wage front—could tip the scales in favor of a hike.
Revisions to recent data will also be of interest on Friday. In April, while the headline job growth figure came in well ahead of expectations, the data from the previous two months was adjusted downward significantly enough to make it clear that the slowdown in trend was continuing.
Economists will also be closely watching a category called temporary help services, which has shed workers in five of the past six months. The sector is sometimes considered a leading indicator for where the labor market is heading, because employers tend to shed temporary employees before moving on to broader job cuts.
“Each dimension of the May’s job report will be relevant to the Fed,” a team of economists with
BNP Paribas
wrote. “We expect data to evolve in a way that keeps the Fed on hold in June and beyond, but would not rule out upside surprises that prompt the [Federal Open Market Committee] to re-engage with rate hikes.”
Write to Megan Cassella at [email protected]
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