/May jobs report preview: Economists look for 674,000 payroll gains as labor supply shortages weigh – Yahoo Finance

May jobs report preview: Economists look for 674,000 payroll gains as labor supply shortages weigh – Yahoo Finance

The U.S. economy likely added back another more than half a million jobs in May as the unemployment rate slid to a new pandemic-era low, with the increased hiring helping to stem some of the labor shortages across the economy during the recovery.

The U.S. Labor Department will release its May jobs report Friday morning at 8:30 a.m. ET. Here are the main metrics expected from the report, compared to consensus estimates compiled by Bloomberg:

  • Change in non-farm payrolls: +674,000 expected and +266,000 in April

  • Unemployment rate: 5.9% expected and 6.1% in April 

  • Average hourly earnings, month-over-month: 0.2% expected and 0.7% in April 

  • Average hourly earnings, year-over-year: 1.6% expected and 0.3% in April

The May jobs report comes following a sharply disappointing April print, when 266,000 jobs were added back versus the 1 million expected. The unemployment rate also unexpectedly increased.

However, some pundits considered the marked April miss an aberration, and others suggested issues in the Labor Department’s survey methodology during pandemic may have been at work. Market participants are set to assign exceptional weight to the May report to confirm or undercut the weak trends seen during the previous month. 

On the whole, consensus economists are looking for a stronger print on the labor market, given that an additional wave of vaccinations, business reopenings and eased mask mandates have taken place in the past month. The expected increase in non-farm payrolls would be the biggest rise since March and represent a fifth straight month gain. And at 5.9%, the expected unemployment rate for May would mark the lowest level since March 2020. That drop in the jobless rate is also expected to come alongside a rise in labor force participation, with an increasing share of Americans out of work returning to the labor force to look for or take new jobs.

“We expect that in the coming months there will be a significant rise in the labor force participation rate because several factors point in that direction,” UBS economist Pablo Villanueva said in a note last week. “Schools are reopening, COVID risks are diminishing, and in many states unemployment benefits are coming down.”

“It is difficult to identify the impact of each of these policies on supply but they all point towards more people joining the labor force,” he added. “All in all, our view on the labor market is one of underlying strength during the coming months but with abnormally high levels of noise.”

With more job gains expected, the economy is on track to fill the deep employment deficit created by the pandemic. Heading into the May jobs report, the economy was still about 8 million jobs short of its February 2020 levels. And millions continue to claim unemployment benefits, even as the number of new filers has inched back toward pre-pandemic levels.

As consumer mobility picks up, companies have been struggling with labor supply shortages to meet demand. A paucity of qualified workers to fill positions has weighed on both manufacturing and services sector activity, according to Institute for Supply Management reports out earlier this week. The Federal Reserve’s Beige Book, or collection of anecdotes tracking economic conditions across the major Fed districts, also highlighted this strain. 

“It remained difficult for many firms to hire new workers, especially low-wage hourly workers, truck drivers, and skilled tradespeople,” according to the Beige Book on Wednesday. “Contacts expected that labor demand will remain strong, but supply constrained, in the months ahead.”

The May jobs report will not only signal the strength in rehiring, but also suggest whether the economy has rebounded to an extent that might warrant a shift in monetary policy by the Federal Reserve. Some central bank officials have suggested it may be time to “think about thinking about” tapering of the Fed’s $120 billion in asset purchases each month, with a much stronger than expected jobs report serving as an early indicator that such a pivot might be justified.

“The May employment numbers are really very important,” Steven Blitz, TS Lombard U.S. economist, told Yahoo Finance. “That’s really going to set in the market’s mind whether or not the Fed announces a taper at the end of July or whether it’s at some later date.”

Others offered a similar take.

“We may be getting into that dynamic where is good news good news, or is it really becoming bad news?” Michael Hans, chief investment officer at Clarfeld Citizens Private Wealth, told Yahoo Finance on Wednesday. “I think the market wants a solid report. But the conditioning from the Fed has been that one report is not ultimately going to dictate policy. So we’re going to need to see consistency there.” 

This post will be updated with the Labor Department’s May jobs report Friday morning at 8:30 a.m. ET. Check back for updates.

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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