The number of jobs created in May is likely to reach 200,000 for the first time in three months and keep the Federal Reserve on course to lift interest rates soon, but the latest snapshot on the U.S. labor market probably won’t contain any alarming news on inflation.
Here’s what to watch on Friday morning in the May employment report.
Rebound in hiring
The pace of job creation slowed sharply to 164,000 in April and 135,000 in March after a huge 324,000 gain in February. The disparity indicates some problems with the government’s method of adjusting its estimates for seasonal swings in hiring as winter turns into spring.
If that’s the case, there’s a good chance the jobs report could show a solid bounce in May. Economists polled by MarketWatch predict the U.S. added 200,000 jobs.
Falling unemployment rate
Unemployment dropped below 4% in April for the first time in almost 18 years and it’s likely to go even lower still.
Most economists think the jobless rate will remained unchanged at 3.9% in May, but eventually it’s expected drop to 3.5%, and perhaps even lower. The last time it was that low was in 1969, when astronaut Neil Armstrong became the first human to step on the moon.
Wages appear to flatline
The rate of increase in hourly wages for American workers rose steadily from 2015 to 2017, but it appears to have hit a wall this year.
Economists predict average hourly wages will rise 0.2% in May, but that will still leave the 12-month change at a modest 2.6% for the fourth month in a row.
Worker pay typically rises 3.5% to 4.5% a year when the unemployment rate is as low as it is now.
Although other measures of worker compensation are increasing a bit faster, labor costs don’t appear to be contributing much to U.S. inflation. That means the Federal Reserve may have more leeway to stick to its gradualist policy of raising interest rates.
Growing labor shortage
American manufacturers and home builders have plenty of business and they are enjoying rising sales, but finding good workers to keep up with demand is a major challenge. Hiring in both industries slowed in the early spring and the situation might not get any better.
Surprisingly, the tight labor market hasn’t forced companies more broadly to offer much better pay. “Many firms responded to talent shortages by increasing wages as well as the generosity of their compensation packages,” the Fed’s Beige Book noted this week. Yet overall “wage increases remain modest” in most regions of the U.S.
Market reaction: The Dow Jones Industrial Average
and S&P 500
traded lower, with renewed trade-war concerns widely cited. The 10-year Treasury yield
was little changed at 2.86%.