Tomorrow’s US jobs report will determine the immediate fate of the reflation rally. Goldman has more.
We estimate nonfarm payrolls rose by 225k in May (mom sa), a slowdown from the +428k pace in both of the previous two months and below consensus of+323k. Job growth tends to slow during the spring hiring season when the labor market is tight—particularly in May before the arrival of the youth summer workforce—and all four Big Data employment indicators we track suggest a below-consensus report. Job postings data also indicate a sequential decline in labor demand, albeit to still very high levels. On the positive side, the May seasonal factors have evolved favorably in recent years and represent a tailwind of roughly 100k, in our view.
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We estimate a one-tenth drop in the unemployment rate to 3.5%—in line with consensus—reflecting a rebound in household employment partially offset by a 0.1pp rise in labor force participation to 62.3%.
We estimate a 0.4% rise in average hourly earnings (mom sa) that lowers the year-on-year rate by two tenths to 5.3% (vs. consensus 0.4% / 5.2%). We continue to expect upward pressure on wages despite a sequential improvement in worker availability, but we assume a modest drag in May from calendar effects.