Prepare for a moderate deceleration of the U.S. labor market. This new adjustment coincides with next week’s release of May’s Nonfarm Payroll numbers. The consensus forecast is for a drop from April’s strong surge of 177,000 jobs. This sharp decline may reflect a reconfiguration in labor market dynamics itself. Such a shift in the global economy would be profoundly damaging to the U.S. economy and to the value of the U.S. dollar.
Most analysts are expecting the May Nonfarm Payrolls report to be one of the worst on record. All of this may signal enduring headwinds for the labor market. Those figures, when released, will likely show an overall cooling trend, great news for consumers, but a warning sign that has some economists and policymakers worried. With continued uncertainty in the labor market, it’s more important than ever to keep a close eye on these indicators to gauge the state of our economic recovery.
The report further cements the economy’s continued resilience, as it added a whopping 177,000 jobs U.S. At least according to the May jobs forecast, job growth won’t be able to keep up with this pace of growth. First, hiring could slow for a number of other reasons. Rising interest rates and continued uncertainty in global markets have moved the needle a lot. As businesses pivot to a new economic reality, hiring might not be their first priority, and that will mean fewer jobs created.
Nonfarm Payrolls are forecast to drop 1.1 million jobs. One good thing, the unemployment rate is expected to remain at last month’s 3.6 percent. This newly found stabilization in unemployment would be a welcome relief as broader indicators suggest a decelerating job market. A flat-unemployment rate is a sign that job growth is likely starting to slow. It just as much signals that, for now, employment is solid and secure.
Wage growth, as measured by Average Hourly Earnings, is expected to stay flat from April’s numbers. This can make employers reluctant to increase compensation. This stagnation of wage growth is indicative of the precariousness in the current economic climate. Stagnant wage growth has a direct effect on the most important component of GDP—consumer spending. When Americans feel pinched with less disposable income in their pockets, it stifles broad economic growth.
The Nonfarm Payrolls report serves as a key barometer for both economic experts and investors. It provides useful context for understanding the general state of the labor market. Job creation is becoming less frequent, net new unemployment is not rising, and wage growth has plateaued. This combination paints a misaligned and confusing picture of our economic prosperity.
Beyond the numbers themselves, market observers will be very interested in how these figures affect the U.S. dollar performance. A softer labor market will increase speculation about what the Fed will do next, especially on interest rates. If the data suggests a significant slowdown, it could prompt the Fed to reconsider its monetary policy stance to stimulate growth.