Labour market gauges have generally been encouraging in May; ADP’s gauge of payroll growth surprised to the upside in the month, initial jobless claims declined to a fresh pandemic low in the corresponding survey week, while continuing claims fell near to the post-pandemic low (both continued to make progress in the subsequent reports too). Business surveys like the ISM reports as well as the Fed’s own Beige Book allude to tight labour market conditions where firms are struggling to fill vacancies, and are having to offer financial incentives like signing-on fees and higher wages to attract staff. However, the Conference Board’s measure of consumer confidence was more mixed: although consumers’ view of the labour market improved, their views on wage growth are not quite as bullish as business surveys are signalling. Traders have suggested that the May jobs data is more important than other recent reports, since it will be influential in the market's perceptions about the timing of the Fed's taper of asset purchases; for what it is worth, even if the report comes in on the strong side, officials will likely highlight the great deal of slack that remains, while there are still multiple-millions that remain out of work vs pre-pandemic levels.
EXPECTATIONS
JOB GROWTH
- Nonfarm Payrolls (exp. 650k, prev. 266k)
- Private Payrolls (prev. 600k, prev. 218k)
- Government Payrolls (prev. 48k)
- Manufacturing Payrolls (exp. 24k, prev. -18k)
JOBLESSNESS
- Unemployment Rate (exp. 5.9%, prev. 6.1%)
- Participation Rate (prev. 61.7%, vs 63.3% in Feb 2020)
- U6 Underemployment (prev. 10.4%, vs 7.0% in Feb 2020)
- Employment-Population Ratio (prev. 57.9%, vs 61.1% in Feb 2020)
WAGES
- Average Earnings M/M (exp. +0.2%, prev. +0.7%)
- Average Earnings Y/Y (exp. +1.6%, prev. +0.3%)
- Average Workweek Hours (exp. 35.0hrs, prev. 35.0hrs)
JOB GAINS
Initial jobless claims data that coincides with the BLS employment situation report survey period showed weekly claims falling to a post-pandemic low at 444k, and the data series continued to show progress the next week too; continuing claims also declined in the corresponding survey window to 3.64mln, although that was not a fresh pandemic low.
The ADP measure of nonfarm payrolls surprised to the upside, seeing 978k private payrolls added to the economy in May, above the forecast range, where the most optimistic forecast saw gains of 900k. ADP (NASDAQ:ADP)'s chief economist said that private payrolls had shown a marked improvement from recent months, and the strongest monthly gain since the early days of the recovery; "While goods producers grew at a steady pace, it is service providers that accounted for the lion’s share of the gains, far outpacing the monthly average in the last six months," she added, "companies of all sizes experienced an uptick in job growth, reflecting the improving nature of the pandemic and economy."
ISM's manufacturing PMI saw the employment sub-component fall by 4.2ppts to 50.9, still in expansion for the sixth straight month, but with momentum cooling (a manufacturing employment index above 50.6, over time, is generally consistent with an increase in the BLS data on manufacturing employment). ISM said that continued strong new-order levels, low customer inventories and expanding backlogs continue to indicate employment strength, but panellists are struggling to meet labour-management plans, and the commentary indicates that an overwhelming majority of companies are hiring or attempting to hire, though more than 50% of manufacturing firms have expressed difficulty in doing so. Similarly, the employment sub-component within the Services ISM declined too, by 3.5 points to 55.3; respondents said that "competition for labour continues to intensify due to lack of available talent pool” and “working to fill vacant positions; difficulty in finding qualified candidates."
SLACK
The Conference Board's gauge of consumer confidence was mixed regarding the labour market; consumers’ assessment of current labour market conditions improved – with the number saying jobs are plentiful rising while those claiming that jobs are hard to get declining, which in aggregate bodes well for the May jobs report. However, optimism in the short-term outlook waned, CB said, with the number expecting business conditions to improve over the next six months falling, while the number expecting business conditions to worsen rose. CB also said that consumers were less upbeat about the job market ahead, with the proportion expecting more jobs in the months ahead falling, while those anticipating fewer jobs rose.
But even if the data surprises to the upside (range is 400k to 1mln), some desks expect Fed commentary to remain cautious, and continue to note that there remain a significant number of Americans out of work. Indeed, the aggregate nonfarm payroll additions since March last year still leaves a deficit of 8.2mln who remain out of work vs pre-pandemic levels, if you judge the amount purely based on the totals of the nonfarm payrolls figures, and potentially even more when accounting for underemployment.
Fed officials are looking beyond the headline unemployment rate to try and gauge the levels of slack that remains; accordingly, the U6 Underemployment metric, Participation Rate, as well as the Employment-to-Population ratio have gained in importance; last month, U6 stood at 10.4% (vs 7.0% in February 2020), Participation was at 61.7% (vs 63.3% in February 2020), and the Employment-Population Ratio was at 57.9% (vs 61.1% in February 2020), all three of these indicating that there is still some way to go, and reclaiming this lost ground is not going to happen in the immediate short-term.
WAGES
Data from Challenger, Gray & Christmas showed monthly job cut announcements picking up a touch in May, to 24.6k from around 22.9k in April, but the trend remains solid, and announced job cuts were still some 93.8% lower vs May 2020 levels. "Many employers, especially those hit hard during the pandemic, such as Retailers and Hospitality and Leisure companies, are having a difficult time finding workers, and many are offering signing bonuses or higher wages to attract workers," Challenger said, adding that “as the labour market tightens, workers may find employers offering more attractive perks and benefits, including higher starting wages, as they look for positions."
However, according to Conference Board data, the number of consumers expecting incomes to rise over the next six-months pared back a touch in May (to +14.5% from +17.4%), though the number of Americans expecting incomes to decline in the next six-months also dropped back. Anecdotes leaning towards this were also noted in the Fed's recent Beige Book (which was conducted before 25th May), which stated that while overall wage growth was moderate, a growing number of firms were offering signing bonuses and had increased starting wages to attract and retain workers.