Market Overview

Non-Farm Payrolls Preview: Job Growth Expected to Maintain Slow Pace, Unemployment Expected to Remain Flat

Non-Farm Payrolls Preview: Job Growth Expected to Maintain Slow Pace, Unemployment Expected to Remain Flat

Tomorrow brings the all important Employment Situation Report, when the Bureau of Labor Statistics (BLS) will announce job growth figures for the month of May. Markets eagerly await the data release as it tends to be one the biggest data points released each month.

Payroll Growth

Economists surveyed by Bloomberg expect that the economy added a mere 165 thousand jobs in May, in line with April's 165 thousand jobs added. The range of estimates is very wide from 80 thousand to 210 thousand with the distribution resembling a double-bell curve. The standard deviation of estimates is 21 thousand jobs and the noted accurate forecasters at High Frequency Economics have a forecast of 150 thousand jobs for the month.

Neal Soss, Chief U.S. Economist at Credit Suisse, sees the chance of a weak figure for May. "Nonfarm payrolls should increase 150K in May, a slowdown relative to the pace of job creation over the prior three months (212K average) and six months (208K average). Slower growth factors outweigh faster growth factors"

Private payrolls are expected to expected to slip ever so slightly to 175 thousand jobs added from 176 thousand in April. The range of estimates is wide from 95 thousand to 220 thousand jobs added and the standard deviation is 21 thousand jobs.

"On the slower side, ISM survey data on activity and jobs were weaker, especially last month, and notably in the service sector," said Soss in a note earlier this week. "Back-to-back declines in manufacturing output suggest factory jobs should be soft. The leading Employment Trends Index has risen at a sluggish rate the last two months. ADP private employment has been growing slower than the official private figures. The Sandy rebuild effect on construction job growth may be petering out. And we look for a modest drag from government because of the sequester."

Unemployment Rate

The unemployment rate has fallen for three straight months, although now economists expect this trend to break. The rate is expected to remain flat at 7.5 percent after declining from 7.9 percent over the past three months. The high estimate is at 7.7 percent and the low estimate forecasts a small drop to 7.4 percent.

"The unemployment rate should remain at the lowest level since the end of 2008. Average hourly earnings should advance at a moderate 0.2% clip MoM and a still subdued 2.1% YoY. The workweek should be flat. Aggregate hours worked (0.1% est) should rise slightly after the April decline (-0.4%). And aggregate weekly payrolls – labor income (0.3% est) – should more than reverse the April drop (-0.2%)."

Market Expectations

Markets slid in mid-day trade Thursday on fears of early Fed tapering of purchases due to a stronger economy. However, the weakness in the dollar Thursday could hint that expectations of a different kind could be creeping in to play.

As the dollar weakened, trader chatter began picking up that the employment report could indicate a softer reading than expected. If such is the case, markets are simply correcting ahead of the news and preparing for the worst.


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