The June jobs report is anticipated for Friday morning at 8:30 a.m. ET, and expectations are that it will reveal a slowdown in the labor market following a surprisingly robust report in May.
Nonfarm payrolls for May are set to rise by 225,000 while the unemployment rate is expected to decrease to 3.6%, according to consensus estimates compiled by Bloomberg. In May, the US economy added 339,000 jobs while unemployment ticked higher to 3.7%. The monthly update on nonfarm payroll additions has beaten consensus expectations for the last 14 consecutive months.
Friday’s jobs report comes as investors raise their bets on an interest rate hike at the Federal Reserve’s next meeting, which begins on July 25. Following a strong morning of economic releases Thursday, futures tied to the Federal Reserve’s benchmark interest rate project a 95% chance that the Fed raises rates at the July meeting, per the CME FedWatch Tool.
Speaking at an event held by the Bank of Spain last week, Fed Chair Jay Powell said the labor market "remains very right," adding in prepared remarks: "While the jobs-to-workers gap has declined, labor demand still substantially exceeds the supply of available workers."
On Thursday, the ADP Employment Report for June showed private employers added 497,000 jobs, well above Bloomberg consensus estimates for 225,000. Meanwhile, the latest Challenger report showed employers cut 40,709 jobs in June, the lowest total since October 2022.
Additionally, the Job Openings and Labor Turnover Survey (JOLTS) showed May job openings fell to 9.8 million in May, down from 10.3 million in April but still higher than March’s 9.7 million job openings. Meanwhile, the quit rate increased to 2.6%. Now at its highest level since February, economists argue the increased quit rate could be a sign of Americans' conviction that the US economy remains strong.
"While job openings declined in May, the drop erased only a portion of April's increase, and they remain above March levels — highlighting the continued tightness in the labor market," Oxford Economics' Ryan Sweet and Matthew Martin wrote on Thursday. "The moderation in labor market data is unlikely to be strong enough to keep the Fed on pause, and we expect the FOMC to raise rates at the upcoming meeting in July."
A strong nonfarm payrolls number combined with a decline in the unemployment rate and consistent wage growth could loom large for the Federal Reserve’s rate hike path when considering other recent data.
Beyond Thursday’s labor data, the latest reading of the Institute for Supply Management’s Services Index showed the services sector remains in expansion. Wells Fargo credited the reading when hiking its nonfarm payrolls expectations from 245,000 up to 260,000 on Thursday.
"The service sector continues to benefit from robust demand; that is pushing many businesses to staff up in a way that has been lacking in recent months," Wells Fargo senior economist Tim Quinlan wrote.
Other economic data points have been hot too. Just last week, a third revision revealed first quarter GDP growth came in nearly twice as high as previously reported while consumer confidence hit an 18-month high.
The confluence of data has largely moved the conversation past if the Fed will hike in July to when the Fed will hike again after that. Friday’s jobs report could be an early indicator of that decision-making.
“We expect the unemployment rate to fall to 3.6% with downside risks and average hourly earnings to rise 0.4% MoM,” Citi’s team of economists wrote in a note on Wednesday. “This should highlight that there has still not been enough loosening in the labor market to convincingly return inflation to 2% and should keep markets expecting a rate hike from the Fed in July."
“More favorable seasonal factors in payrolls could mean monthly job growth remains strong from July through September, reinforcing our base case for another hike from the Fed at the September FOMC meeting.”
