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Investors will be watching May’s nonfarm payrolls report for more clarity on whether the Federal Reserve can ease its fight against inflation.
Economists surveyed by Dow Jones expect the Bureau of Labor Statistics to report that the U.S. economy added 190,000 jobs during the month, a slight increase from the 175,000 gain in April.
Additionally, markets will be taking a close look at wage numbers as average hourly wages are expected to rise by 0.3%, slightly higher than last month, putting the 12-month increase at 3.9%, which is the The same pace as last month, and an indication that the central bank still has more work to do.
Other employment indicators this week showed a slowdown in private wage and salary growth, as ADP reported growth of just 152,000, and a slight increase in the pace of initial jobless claims.
“The May jobs report is particularly consequential now,” Citigroup economist Andrew Hollenhorst said in a note. “A weaker reading [of less than 175,000 jobs and an unemployment rate of 4% or more] would be final evidence that the slowdown will continue. On the other hand, an unexpected strengthening would reinforce the idea that there is no urgency to cut interest rates and push Treasury yields back up.”
Citi expects the report to show just 140,000 jobs and the unemployment rate to reach 4% for the first time since January 2022.
If this is the case, it could give the Fed the impetus to cut interest rates sooner than expected.
Markets currently expect the first rate cut to occur in September, with another one planned for December. Citi is below consensus on its employment outlook and has by far Wall Street’s least divergent view on rate cuts. The Fed is expected to begin doing so in July and make four cuts by the end of the year.
However, Goldman Sachs also expects a below-consensus employment increase of 160,000 as seasonal adjustments slow job growth. However, the company also expects to add one additional week of pay per month to offset some of the seasonal bias.
On wages, Goldman Sachs is largely in agreement, keeping profits at levels that Fed officials say are inconsistent with their 2% inflation target.
The BLS will release the report at 8:30 a.m. ET.
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2024-06-06 20:39:56
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