June Jobs Report Preview: Strong Employment Momentum Hints At Upside Surprise In Nonfarm Payrolls Data

With Friday on the horizon, investors are eagerly anticipating the Bureau of Labor Statistics’ job market report for June. This report will reveal crucial data points, including the non-farm payrolls (NFPs), hourly wage growth, and the unemployment rate, providing a key snapshot of the country’s labor market condition.

The data will also provide valuable insights, potentially shaping market sentiment and influencing the Federal Reserve’s upcoming decisions on interest rates.

The market is approaching this jobs report with heightened volatility, as rate hike expectations have seen a sharp surge on Thursday. Both the SPDR S&P 500 ETF Trust SPY and the Invesco QQQ Trust QQQ fell by about 1% on the day.

Market participants have almost completely factored in a rate hike in July, while simultaneously escalating their predictions for another raise in either September, currently estimated at a 30% likelihood, or November, with a slightly higher probability of over 40%.

In May, the U.S. economy surprisingly added 339,000 jobs, the highest reading in four months and well above market forecasts of 190,000, continuing to point to a very tight labor market.

Will the payroll growth for June deliver an unexpected increase, surpassing initial expectations?

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June Job Market Report: Economist Predictions

Economists’ consensus forecasts NFPs to decrease from 339,000 to 225,000 in June.

The unemployment rate is expected to edge lower from 3.7% to 3.6%.

Average hourly earnings, watched to scrutinize any signs of wage growth, are projected to rise by 0.3% month over month, similar to May, and increase by 4.2% compared to a year ago, slightly down from 4.3% in May.

Booming ADP Employment Growth Raises Expectations For Strong NFPs

A surprising surge in ADP employment in June, with 497,000 payrolls, up from May’s 267,000 and well above the expected 228,000, served as an enticing appetizer to the Bureau of Labor Statistics’ report coming out on Friday.

Since January 2022, NFPs have underperformed the ADP employment print in only three out of 17 months.

These instances include June 2022, when NFPs were 95,000 less than ADP’s employment growth of 495,000. This pattern was seen again in December 2022, with NFPs trailing ADP by 14,000 (totaling 253,000), and most recently in February 2023, with NFPs lagging by 13,000 behind ADP’s 261,000.

To fall below the market’s expectations (225,000), June NFPs would need to show a negative deviation of at least 273,000 compared to the June ADP reading (497,000).

In the post-pandemic period, such a huge disparity between the two payroll estimates has occurred just twice: in December 2020 (negative by 495,000) and September 2021 (negative by 355,000).

This points to a strong possibility that June employment figures will beat market estimates.

Chart: NFPs Fell Short Of ADP Employment Figures Only Three Times Since 2022