The pace of job growth in the United States is expected to have slowed in May, accompanied by a decrease in wage growth.
This development could potentially lead the Federal Reserve to abstain from raising interest rates this month, marking the first time they would do so since initiating their aggressive tightening campaign over a year ago.
Nonetheless, the upcoming employment report from the Labour Department, scheduled for release on Friday, is anticipated to indicate a still tight labour market. Economists predict that the unemployment rate will rise from 3.4% in April to 3.5% in May.
The report will confirm that the economy remains distant from an imminent recession, although certain pockets of weakness are becoming more apparent.
Bill Adams, the chief economist at Comerica Bank, states that the jobs report is likely to exhibit a further deceleration in the pace of growth, while still reflecting a robust labour market. He adds that the Federal Reserve is currently facing less pressure to increase interest rates at their upcoming meeting compared to the past year and a half.
According to a survey of economists, it is expected that the survey of establishments will reveal an increase of 190,000 nonfarm payrolls in May, following a rise of 253,000 in April.
While the projected increase of 190,000 nonfarm payrolls in May would represent a deceleration compared to the average monthly addition of 285,000 jobs in the initial four months of the year, it would still surpass the range of 70,000-100,000 jobs needed each month to match the expansion of the working-age population.
The revisions for the data from March and April will be closely monitored. Last month, the government revised the employment gains for February and March, reducing them by a combined total of 149,000.
Despite substantial layoffs in the technology sector due to over-hiring during the COVID-19 pandemic, as well as the impact of higher borrowing costs on housing and manufacturing, the services sector, including leisure and hospitality, is gradually recovering as businesses struggle to find workers. Industries such as healthcare and education are also experiencing an increase in retirements.
The need to replace these retirees and the rising demand for services are contributing factors to job growth. Labour Department data this week demonstrated the pent-up demand for workers, revealing 10.1 million job openings at the end of April, with 1.8 vacancies for every unemployed person.
Nevertheless, cracks are beginning to emerge.
A survey conducted by the Conference Board in May showed that the percentage of people perceiving job availability as “plentiful” reached its lowest level since April 2021.
While the Fed’s “Beige Book” report in May described the labour market as remaining strong, it acknowledged that “many contacts” were fully staffed and some were pausing hiring or reducing headcounts.
Temporary help employment, often considered an indicator of future hiring trends, has declined by 174,000 since reaching its peak in March 2022.
Overall, the labour market remains positive, with initial claims for state unemployment benefits remaining at historically low levels.
Most economists anticipate continued growth in payrolls at least through the end of the year.
Average hourly earnings are projected to have risen by 0.3% in May, following a 0.5% increase in April, which was attributed to calendar-related factors. Consequently, the year-on-year wage increase is expected to remain at 4.4%.
Prior to the pandemic, annual wage growth averaged around 2.8%.
The slowdown in wage inflation is supported by other indicators such as the Atlanta Fed’s wage tracker, which has decreased from its previous peaks.
Furthermore, the government’s data, which was made public on Thursday, disclosed substantial reductions in unit labour costs during the first and fourth quarters.