The first week of June will culminate on Friday with the biggest of several labor-related data reports — the Department of Labor’s Employment Situation Report for May, also known as the nonfarm payrolls report.
On Tuesday, data for job openings in April softened more than expected, and ADP’s take on private employment also signaled a slower-growth scenario. Challenger’s Job Cuts Report showed that year-to-date announced job cuts are at the third-highest level since May 2009 and that hiring rates have weakened.
Economists, on average, expect that the U.S. economy added 188K jobs in May, up from the Bureau of Labor Statistics’ initial estimate of 175K jobs added in April. Watch for any revisions in the April number, too. The unemployment rate is expected to stay unchanged at 3.9%, which remains near record lows.
The U.S. labor market is strong and remains resilient, but is easing, said Nick Bunker, director of North American Economic Research at Indeed. “Demand for workers continues to moderate, even if it’s still elevated,” he said in an interview with Seeking Alpha. “So it’s a labor market that’s still quite strong, but increasingly has come into better balance between demand for workers and the supply of workers.”
Indeed’s data for the geographic distribution of job postings show weakening in the tech hubs, chiefly San Francisco, Seattle, and San Jose, Bunker said.
With inflation being the Federal Reserve’s main focus, the jobs report’s data on average hourly earnings will be important. That’s expected to rise 0.3% M/M, a tick up from the 0.2% increase in April, according to the consensus estimate. On a Y/Y basis, that’s expected to be a 3.9% increase, unchanged from the prior month’s pace.
“I’m looking for signs that the increase in labor force participation and employment-to-population ratios continues, and specifically, I like to look at those statistics for people ages 25 to 54,” which reflects people in their core working years, Bunker said.
The labor force participation rate is expected to stay at 62.7%, according to the consensus estimate.
And as labor demand comes into better balance with supply, wage growth should also ease. Wage growth remains elevated, but has retreated from its peak. “If that continues to moderate, that’s going to be for the Federal Reserve at least a positive indication that the labor market is coming back into balance, and they might need to do less to slowly mark it down.”
Seeking Alpha Analyst Logan Kane sees job the labor market weakening significantly. “While unemployment claims show little cause for concern, job openings are rapidly falling, indicating a continued, substantial slowdown in hiring,” he wrote recently.
Daily job-openings data from job-posting site Indeed offers a similar story. “Even since January 1, we’ve seen roughly 11% of the jobs postings disappear,” he said. “If nothing else changes, I expect that job postings will be below levels seen in early 2020 by late summer.”
His conclusion: “The economy looks increasingly set for a recession as the Fed keeps the pressure on with its tightening campaign. That’s a problem for stocks trading at all-time highs.”
SA Analyst Manika Premsingh said, “With the macroeconomy finally playing by the book, as the employment report and particularly weak payroll figures are likely to indicate, rate cuts could happen sooner rather than later.” She recommends avoiding short-term indexing, noting that the S&P 500 has risen 25% over the past year, but Q1 GDP growth slowed to below trend and corporate profits dipped as well.
One idea is to consider real estate. “Lower rates can be a balancing factor and buying into the sector now can hold investors in good stead when the cycle turns,” she said.