Strong US Job Growth Expected in May; unemployment rate seen at 3.5%

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A rental sign is displayed on the door of a GameStop in New York, U.S., April 29, 2022. REUTERS/Shannon Stapleton/File Photo

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  • Non-farm payrolls expected to rise by 325,000 in May
  • Unemployment rate likely fell to 3.5% from 3.6% in April
  • Expected average hourly earnings up 0.4%

WASHINGTON, June 3 (Reuters) – U.S. employment likely rose at a healthy pace in May, with the jobless rate expected to have fallen to its pre-pandemic level of 3.5%, a sign of a tight labor market that could keep the Federal Reserve’s foot on the pedal to cool demand.

Friday’s closely watched Labor Department jobs report, which is also expected to show strong wage gains over the past month, would paint a picture of an economy that continues to grow, albeit at a moderate pace.

The Fed is trying to curb demand for labor to keep inflation under control, without pushing the unemployment rate too high. The US central bank‘s hawkish monetary stance and accompanying tightening of financial conditions have left investors fearing a recession next year.

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“This report will continue to show signs of a tight labor market and, combined with the high inflation environment we find ourselves in, it further gives the Fed the confidence it needs to stay on track. path to a substantial tightening of its monetary policy,” said Sam. Bullard, senior economist at Wells Fargo in Charlotte, North Carolina.

Nonfarm payrolls likely rose by 325,000 jobs last month after rising by 428,000 in April, according to a Reuters survey of economists. It would be the smallest gain in a year and end 12 consecutive months of payroll gains above 400,000, the longest such streak on record. Employment would be about 865,000 jobs below its pre-pandemic level.

Estimates ranged from as low as 250,000 jobs added to 477,000. Job gains, however, would still be well above the monthly average that prevailed before the COVID-19 pandemic began in 2020.

The survey came Thursday ahead of the ADP’s National Jobs Report, which showed private sector payrolls rose by just 128,000 jobs in May, the smallest increase in two years. That prompted Goldman Sachs economists to cut their nonfarm payroll forecast from 50,000 to 225,000.

Economists are split on whether the moderating pace of job growth is due to slowing labor demand or labor shortages, and are urging investors to focus on the unemployment rate and wage growth to assess the tightness of the labor market. There were 11.4 million job openings at the end of April, with nearly two positions for every unemployed person. Read more

“While we agree that job growth is slowing, the labor market is still strong,” said Kevin Cummins, chief U.S. economist at NatWest Markets in Stamford, Connecticut.

The anticipated drop in the unemployment rate of 3.6% in April would bring it down to its lowest level since February 2020, then to the lowest since December 1969. A rebound in the labor force participation rate, or the proportion of Americans of working age who have a job or are looking for one, is expected after falling from a two-year high in April.

Annual inflation, which has risen to rates last seen 40 years ago, and rising wages are drawing some retirees into the labor market, helping to increase supply. But the gap between demand and supply remains significant. Average hourly earnings are expected to rise 0.4% after rising 0.3% in April.

“It will take some time before a more noticeable rebalancing between the demand for labor and the supply of available workers,” said Veronica Clark, an economist at Citigroup in New York. “This imbalance suggests further upward pressure on inflation and the Fed is unlikely to become more dovish until this key force underlying high inflation is resolved.”

The US central bank has raised its key rate by 75 basis points since March. It is expected to raise the policy rate by half a percentage point at each of its next meetings this month and in July. Fed Vice Chair Lael Brainard said on Thursday she saw little reason to pause in September.

Although cries of a recession are growing louder, most economists believe the economic expansion will continue into next year. They acknowledged that high inflation was eroding consumer purchasing power and business investment, but argued that the economy’s fundamentals were strong and any downturn was likely to be moderate.

The outlook for the economy has also been clouded by a weakening global environment, in part due to Russia’s war on Ukraine and China’s zero COVID-19 policy.

“There are dark clouds on the horizon. For the next six months, we will be in a slowdown in economic activity, but I do not necessarily know that we will enter a recession,” said Grégory Daco economist chief at EY-Parthenon. At New York.

“We should let go of the idea that the next recession will be as severe as the previous one, because today’s conditions are very unique. The previous two recessions occur once every 100 years. It is therefore unlikely that ‘they be repeated.’

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Reporting by Lucia Mutikani; Editing by Andrea Ricci

Our standards: The Thomson Reuters Trust Principles.

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