NFP Preview – May Edition

The U.S. Labor Department is set to release its latest batch of non-farm payrolls (NFP) data on 2 June, giving traders the latest glimpse of the world’s largest economy. A repeat performance of the April NFP report will boost confidence in the domestic economy at a time when other indicators are showing less than promising growth.

NFP Last Month

The U.S. economy is coming off its worst quarter of economic growth in three years, with gross domestic product (GDP) expanding 0.7% annually in the January-March period.[1] The month of March was also associated with a dismal NFP reading, as employers added a mere 79,000 workers to payrolls. That was the slowest hiring pace since April of last year.

However, analysts cautioned not to read too much into the weak reading, which was largely attributed to seasonal factors. Hiring picked up to a 211,000 pace for April, with unemployment falling to decade lows even as workforce participation increased. Wages also accelerated seven cents an hour to an annualized pace of 2.5%, official data showed.[2]

Analysts on May NFP

So far, all signs seem to point to a similar gain for the month of May. Initial jobless claims – a barometer of labor market health – have fallen to 44-year lows this month,[3] while continuing jobless claims are hovering at their lowest level in more than 28 years.[4]

Against this backdrop, job gains of around 200,000 for May might be possible.

NFP and the Potential Rate Hike 

A robust jobs report will only embolden calls for raising interest rates at a time when the Federal Reserve is keen on normalizing monetary policy. The minutes of the May Federal Open Market Committee (FOMC) revealed that policymakers believe another round of hikes may be warranted “soon.”

Traders say there’s an 80% chance the Fed raises rates at its upcoming policy meeting on 14-15 June, according to the CME Group’s FedWatch Tool.[5]

Jobs data are intricately tied to expectations about monetary policy. With the U.S. economy at full employment, the path to multiple rate hikes appears to be widening.

The June policy decision will be accompanied by revised economic projections covering GDP, unemployment and inflation.

NFP data will be released at 12:30 a.m. GMT on Friday.

References:

[1] Sho Changra (28 April 2017). “U.S. Economy Grew 0.7% in First Quarter, Slowest in Three Years.” Bloomberg Markets.

[2] Jeff Cox (5 May 2017). “US created 211,000 jobs in April, vs 185,000 jobs expected.” CNBC.

[3] Lucia Mutikani (25 May 2017). “Jobless claims edge up; goods trade deficit widens.” Reuters.

[4] Channel News Asia (18 May 2017). “US jobless claims fall; continuing claims at 28-1/2-year low.”

[5] Jeanna Smialek and Christopher Condon (24 May 2017)..”Fed sees rate hike ‘soon,’ according to FOMC minutes, with market predicting 80% chance of June increase.” Financial Post.