May Jobs Report Set to Showcase Robust Hiring Amidst Economic Uncertainties

The eagerly awaited May jobs report is poised to reveal yet another strong month for hiring, capturing the attention of investors seeking insights into the labor market’s resilience amid concerns about rising interest rates, persistent inflation, and recession fears.

Refinitiv economists’ median estimate suggests that the Labor Department’s May payroll report will show a gain of 190,000 jobs last month, accompanied by a marginal uptick in the unemployment rate to 3.5%. Although this represents a decline from April’s 253,000 increase and the average of 290,000 jobs added per month over the previous six months, it still surpasses the monthly average before the pandemic hit.

Daniel Zhao, senior economist at Glassdoor, commented, “In the last few months, the job market has continued to defy gravity, adding a steady clip of jobs and holding unemployment at historically low levels despite a backdrop of rising interest rates, banking turmoil, tech layoffs, and debt ceiling negotiations. After a healthy April jobs report, May is likely to repeat with an equally strong performance.”

The Federal Reserve will closely scrutinize the report, seeking evidence of a potential softening in the labor market as they grapple with taming inflation. Although the Consumer Price Index has moderated from its peak in June 2022, remaining three times higher than the pre-pandemic average even after ten consecutive interest rate hikes raises concerns.

As policymakers evaluate the impact of tighter monetary policies on the economy, they have indicated a potential pause in the rate-hiking campaign at their meeting in June. However, certain officials have suggested they are open to further rate hikes, highlighting the divergence of opinions.

Gregory Daco, EY chief economist, emphasized, “The May jobs report will take on heightened importance given the Fed’s extreme data-dependent approach and the growing divide among Fed policymakers over whether to pause their rate-hiking campaign in June.”

The potential emergence of stronger-than-expected job and wage data could raise alarm bells for the U.S. central bank. Daco added, “Overall, the May jobs report should still argue in favor of a Fed pause at the upcoming June FOMC (Federal Open Market Committee) meeting. Still, hawkish Fed commentary and excessive data dependence mean that a hotter-than-expected jobs report could push the small majority of policymakers in favor of a ‘hawkish pause’ to join those favoring another rate hike.”

Contrary to economists’ predictions of a slowdown, the labor market has remained remarkably tight over the past year. A separate report released on Wednesday revealed an unexpected surge in job openings to 10.1 million in April, the highest level in three months. Prior to the COVID-19 pandemic in early 2020, the previous record high was 7.6 million job openings. Additionally, layoffs and discharges declined, indicating that employers are holding onto their workers in the fiercely competitive labor market.

As the May jobs report looms, all eyes are on the numbers, seeking reassurance amid ongoing economic uncertainties.