May Jobs Report Forecasts Predict Healthy but Moderating Hiring Gains

The May jobs report is forecast to show that the labor market is slowing but still generating new jobs at a healthy clip. Against a backdrop of still-sticky inflation, that likely leaves the Federal Reserve waiting until later this year to cut interest rates.

“The last few months have shown job growth moderating, and this is exactly what the Fed wants to see,” says Anthony Saglimbene, chief market strategist at Ameriprise Financial. He adds that this is positive for markets since slowing job growth in a strong economy is more evidence of a so-called Goldilocks scenario. “But it will also mean the Fed is in no hurry to cut interest rates.”

Solid Job Growth Seen Continuing In May

Economists predict that the US economy added 180,000 jobs in May, according to FactSet’s consensus estimates. That’s up only slightly from 175,000 in the April report. That number would represent a major slowdown from the year-to-date high of 315,000 jobs added in March, but analysts still characterize it as resilient, healthy growth.

Jeffrey Roach, chief economist for LPL Financial, says a monthly run rate of around 175,000 jobs indicates a soft landing for the economy, a rare dynamic wherein the Fed brings down inflation via high interest rates without damaging the labor market or economic growth. “That means the labor market’s not running too hot, which would be inflationary, or too weak, which would be recessionary. That’s the Goldilocks scenario.”

Other survey data also points to a labor market cooldown. The April Job Openings and Labor Turnover report, released Tuesday, showed that job openings fell more than analysts anticipated last month. Wednesday’s ADP private payrolls report also came in below expectations.

April Jobs Report Forecast Highlights

• Jobs report release date and time: Friday, June 7 at 8:30 a.m. EDT
• Nonfarm payroll employment is forecast to rise 180,000 vs. a 175,000 increase in April, according to FactSet.
• The unemployment rate is forecast to stay steady at 3.9%.
• Hourly earnings are predicted to rise 0.3% on a monthly basis, up from 0.2% in April.

Analysts from Bank of America expect job growth of 200,000—higher than the consensus but still indicative of a “healthy but better-balanced labor market,” they wrote in a Sunday note. “In short, the report should signal strong labor demand and little concern of an economic slowdown, in our view.”

Roach says he’ll watch the divide between lower-paying jobs (in industries like leisure and hospitality) versus higher-paying jobs. “That’s going to be really important,” he says, “because we know that for the last several years the economy has been supported by upper-income households.” He notes that cracks are already emerging among middle-income consumers. More cracks could be a red flag for the economy. Roach expects an uptick in transportation, warehousing, and utilities hiring, reflected in the JOLTS report, as the economy accommodates new demand for artificial intelligence technology.

When Will the Fed Cut Rates?

The Fed is widely expected to hold interest rates steady at the current range of 5.25%-5.50% at its policy meeting next week. Bond traders see a roughly 56% chance that the central bank will cut rates by 0.25% at its September meeting, according to the CME FedWatch tool, and a 41% of two rate cuts by December.

“The May minutes revealed that Fed officials were continuing to see the labor market come into better balance, albeit at a slower rate than before,” JPMorgan analysts wrote last week.

Roach says that if cooling continues, it will be “really good news for the Fed.” Weaker wage growth and a looser labor market mean fewer inflationary pressures. Investors will get even more insight into the Fed’s thinking next week when it releases its latest projections for interest rates and inflation.