May Jobs Report Anticipation Grows as Investors Seek Clarity on Fed Rate Policy

James Hyerczyk
Published: Jun 7, 2024, 11:56 GMT+00:00

Investors are hoping the NFP report indicates a soft landing scenario, where job openings and hiring slow, but layoffs remain minimal.

Employment Reports

May’s Nonfarm Payrolls Report: Anticipation and Market Impact

Investors are eagerly awaiting May’s nonfarm payrolls report, seeking clarity on the Federal Reserve’s potential easing in its inflation battle. Economists expect the U.S. economy to add 190,000 jobs, up from April’s 175,000 gain.

Key Employment Indicators

Wage numbers are critical, with average hourly earnings projected to rise by 0.3%, maintaining a 3.9% annual increase. This steady pace suggests the Fed’s inflation control efforts are ongoing. Additional employment data has shown mixed signals: ADP reported a modest 152,000 private payrolls increase, and initial unemployment benefit filings saw a slight uptick.

Expert Opinions

Citigroup economist Andrew Hollenhorst notes that a weaker job gain of less than 175,000 and an unemployment rate above 4% could signal a continued economic slowdown. Conversely, a stronger report could delay rate cuts and push Treasury yields higher. Citi predicts a 140,000 job increase with a 4% unemployment rate, suggesting an earlier rate cut, possibly starting in July with four reductions by year-end.

Goldman Sachs offers a slightly more optimistic view with a forecast of 160,000 jobs, attributing potential growth limitations to seasonal adjustments. The firm remains in consensus on wage gains, aligning with the Fed’s 2% inflation target.

Recent Job Market Performance

April saw 175,000 jobs added, significantly lower than the expected 235,000 and March’s 315,000. This aligns with pre-pandemic job growth rates, reflecting a labor market gradually easing. The May report is anticipated to show 190,000 payrolls with a sub-4% unemployment rate, a streak not seen since the 1950s.

Federal Reserve’s Goals

The Fed aims for a balanced labor market to curb inflation without spiking unemployment or triggering a recession. Current data indicates a soft landing scenario, where job openings and hiring slow, but layoffs remain minimal. Experts suggest this gradual descent is ideal, avoiding drastic market disruptions.

If unemployment stays below 4% for the 28th consecutive month, it would be a significant milestone. However, a rate above 4% could have psychological impacts, particularly in a tight labor market. Initial unemployment claims remain low, with 229,000 new filings last week, and job cuts are also down, indicating a stable market.

Market Forecast

Given the mixed signals and expert predictions, the labor market shows signs of potential volatility. A weaker jobs report could prompt earlier rate cuts, while stronger data might delay these adjustments. Traders should remain prepared for fluctuations based on the upcoming report.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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