MNI US Payrolls Preview: A Test Of Recent Solidity

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Executive Summary

• Released on Friday, Jun 5, nonfarm payrolls are seen increasing by 85k in May (primary dealer median 95k) after a surprisingly strong 115k increase in April followed some particularly volatile months in Q1.
• Weather effects were believed to have been on the small side in April and could well have been limited again in May, with the expected difference with April instead being a drag from the collapse of Spirit Airlines, restrictions on commercial driving licenses and a marginal drag from strikes.
• Expect equally close attention on the unemployment rate as well, widely seen at 4.3% in May after 4.34% in April. Whilst the latter surprised higher, it has roughly trend sideways since last summer which brings into question some estimates that the breakeven payrolls growth rate was nearing zero.
• AHE growth is expected to firm a little on the month although drop back to its lowest since mid-2021 in Y/Y terms, continuing to point to little sign of inflationary pressure stemming from the labor market itself.
• The recent improvement in various labor market metrics has seen the FOMC increasingly focus on upside inflation risks, which are likely to remain in the driving seat when it comes to rate hike expectations.
• With a 25bp hike currently fully priced by Mar 2027, we see two-sided risk to the report itself this month although still lean towards greater sensitivity to a dovish report. Middle East conflict developments are likely to remain a key driver as well though.
• This is the last payrolls report input before Kevin Warsh’s first FOMC meeting as Chair on Jun 16-17.
• Still to come this week before the release: ISM services plus monthly ADP, claims and Challenger job cuts.