Nonfarm Payrolls Preview: Banks see a still quite strong labour market

The labor market is probably neither as strong as the job gain suggests, nor is it just collapsing as other indicators signal. Accordingly, we forecast a job gain of 240K in the June report, which would be less than in May, but still well above the 100K expected on trend based on population trends. Moreover, measured against the consensus forecast of 213K, it would be the 15th consecutive month in which consensus expectations were exceeded. We also expect the unemployment rate to partly reverse May's jump: we forecast a slight decline to 3.6%. Such a report would probably not make the Fed believe that the labor market is already almost back in balance. Accordingly, we still consider a rate hike of 25 bps at the next meeting at the end of July to be likely.

We forecast June NFP at 180K, and if we do see further signs of wage inflation cooling followed by a lower Core CPI release on 12 July, we think the Fed could still end up staying on hold in the next meeting.

Last month, the rise in NFP was immensely strong at 339K, but we do expect to see a moderation this month with something closer to the 225K mark. The unemployment rate jumped to 3.7% from 3.4% last month given the household survey data painted a very different picture to the payrolls data – with households reporting that employment actually fell. We see this reversing part of the jump and coming in at 3.6%. Meanwhile, average hourly earnings should soften a touch with another 0.3% MoM print, which would bring the annual rate of wage growth down to 4.2%.

Payrolls likely remained above-trend in June, registering a firm 240K gain but the data will still represent slowing vs the still booming 317K expansions, on average, in April-May. That is at least directionally what the Fed would be looking for. We also look for the UE rate to drop a tenth to 3.6% and for wage growth to print 0.3% MoM. age growth also likely printed 0.3% MoM again, keeping the YoY pace unchanged at 4.3%.

We expect payroll gains to slow to 190K in June, as in our view, all evidence points to a slower, but still historically robust, rate of job gains. We expect the unemployment rate to tick lower to 3.6%, while average hourly earnings should remain at 0.3% MoM. 

We expect headline (consensus +225K, DB +200K vs. +339K previously) and private (consensus +200K, DB +175K vs. +283K) payroll gains to slow relative to their three-month averages of +283K and +231K, respectively. This should still edge unemployment back down a tenth to 3.7% (consensus 3.6%) after a surprise spike last month. Hours worked were weak last month and we expect that to bounce from 34.3 to 34.4hrs. Hourly earnings are expected to be steady at 0.3%.

US jobs report in June likely saw 260K increase in payroll employment, down from the +339K in May, but still at a high level. We expect the unemployment rate likely edged up to 3.8% (calculated separately from the household survey), from 3.7% in May.

We expect job creation to have slowed to 175K in the month. The household survey could show a slightly bigger gain following May’s unexpected drop, but this should not lead to a change in the unemployment rate (3.7%).

We again expect strong employment readings. Our forecast is for a 250K NFP increase and a decline in the unemployment rate to 3.6%. 

Initial jobless claims jumped in early June, suggesting that hiring could have slowed to a 185K pace over the month. That’s also in line with the decline in aggregate hours worked seen in several industries lately including information, manufacturing, retail trade, and transportation and warehousing. The household survey showed a sizable drop in jobs in May and a return to job growth in that survey would keep the unemployment rate at 3.7%, in line with potentially more progress in participation in the core 25-54 age group, which would have also left room for further job gains without additional wage pressures. We’re below the consensus on hiring which could put pressure on bond yields.

We expect NFP growth to moderate in June. Demand for workers continues to subside, with initial jobless claims moving up between survey weeks and the four-week average up nearly 20% over the past year. Meanwhile, job postings in June continued to slide. However, cooling in the jobs market remains incremental rather than abrupt. Therefore, we look for what we would consider to be a still robust gain of 245K new jobs in June, but will be closely watching revisions to May given the 22-year low in the survey response rate. After shooting up 0.3 percentage points in May, we look for the unemployment rate to tick back down to 3.6% in anticipation of some bounce-back in the household measure of employment. The recent trend in average hourly earnings is likely little changed, leading us to expect another 0.3% monthly increase that would push down the 12-month change only slightly to 4.2%.

After a surprisingly strong 339K increase in nonfarm payrolls in May, we expect a slowing in employment growth in June, although to a still-solid 170K jobs added during the month. This could also be a temporarily softer month of payroll growth with upside risks again to payrolls from July through September. After the unemployment rate unexpectedly rose to 3.7% in May, we expect a decline to 3.6% in June with downside risks. While the expectation for a 170K increase in NFP in June would be the softest since December 2020, not all elements of the June employment report would be indicative of a loosening labor market. Indeed, some of the weakness in June hiring relative to strong seasonal patterns could still be indicative of labor shortages, especially in sectors leisure and hospitality where employment is still below pre-pandemic levels. This would imply upward pressure on wages, and we expect a solid 0.4% MoM increase in average hourly earnings in June.