US NFP Preview: 8 Major Banks Expectations from the May Release
We are closing in on the May’s release of US Non-Farm Payrolls data. The following are the expectations as forecasted by the economists and researchers of 8 major banks.
After posting a 160k figure in April, all the 8 major banks suggests that a upward surprise is possible in net hiring and NFP is likely to print a number in between 145K to 200K while the unemployment rate is expected to tick down to 4.9% from its last print of 5%.
RBS forecast looks for a modest pickup in the pace of US employment growth versus April. Both overall and private payrolls will be reduced by nearly 40,000 as a result of striking Verizon workers (a "special factor" the Fed will look through). Taking that drag into account, we look for payrolls in May to have increased by 170,000 (i.e. excluding the Verizon strike, our forecast would be +210,000), and we look for private payrolls to have advanced by +160,000 (i.e. +200,000 ex-Verizon).
Today’s main event is the release of the US Employment Report for May. Our own econometric model, which takes into account the other labor market indicators for May that have already been published, generates a forecast of 170K. However, this does not take into account the negative impact of the Verizon strike, which could subtract about 35K from the nonfarm payrolls this month. This would put our adjusted forecast at 135K.
With consensus particularly low (160k), an upward surprise is possible. Whatever the state of the underlying labour market, the high monthly volatility (created, amongst other things, by statistical/seasonal adjustment gyrations) in NFP makes the risk of a higher reading than last month (160k) much greater than the risk of a lower one. We look for a reading closer to 200k or above (INGF 210k), consistent with an underlying trend of around 185k. On this basis though, anything sub-consensus could raise a few question marks for the FOMC doves, who may want to see June’s data before hiking. Statistical noise could bring the unemployment rate down to 4.9%. If AHE sticks around the 2.5% area, it should be sufficient for the next hike.
Our NFP model estimates an increase of 178k in today’s report which is marginally higher than the current market consensus on Bloomberg of 160k. It Is worth remembering that the BLS has estimated that the Verizon workers’ strike will take 35k off the NFP estimate today. The other details of the report are likely to indicate a tightening labour market as well. The unemployment rate is expected to drop 0.1ppt to 4.9% while perhaps most importantly the annual change in hourly earnings is expected to remain close to the recent cyclical high at 2.5%. In fact the risk there must be to the upside. Our own estimates for earnings is that the annual rate will drift toward 3.0% by year-end while the Beige Book released on Wednesday evening reported “tight” labour markets across “most districts”.
We estimate along with consensus that non-farm payrolls increased by 160,000 in May. Moreover, we estimate that the unemployment rate declined to 4.9% and that average hourly earnings increased by 0.2% m/m, implying a wage inflation rate of 2.5% y/y. Note that the ADP report came in completely in line with expectations at 163,00 in May. So, little new information from this labour-market indicator.
We expect the Bureau of Labor Statistics (BLS) to report that US nonfarm payrolls increased by a net 175k jobs in May (consensus: 160k), a modest step up from the prior month when nonfarm payrolls gained 160k workers. We have revised up our forecast modestly, by 15k, from our original estimate of 160k, as the May ADP private payrolls employment report showed that private payrolls added 173k workers, a bit stronger than our forecast for 155k. On the rest of the data, we expect the unemployment rate to tick down to 4.9% (consensus: 4.9%) on a rounded basis, as further job gains should put downward pressure on the jobless rate. Last, we forecast that average hourly earnings grew by 0.20% m-o-m (2.4% y-o-y) (consensus: 0.2%) in April, following a 0.31% m-o-m increase in April.
The US employment data is the main focus ahead of the weekend. Nonfarm payrolls are expected to have added around 160k jobs. That would be the second consecutive month below 200k. In both 2014 and 2015, there was one such back-to-back sub-200k reading (Jan-Feb 2014 and Aug-Sept 2015). Moreover, the 40k strike at Verizon likely depressed the report.
Today all eyes will be on the US payrolls report-particularly following the deluge of hawkish signals coming from Federal Reserve in recent weeks. Markets are looking for another modestly positive print at 160K new jobs in June, though we think that is a touch optimistic and are looking for a deceleration to 145k. Note that the ongoing strike at Verizon is depressing the job creation figures by ~35k. We expect the unemployment rate to remain unchanged at 5.0% (consensus: 4.9%). Wage growth should be relatively subdued, posting a modest 0.2% m/m gain with the annual pace of average hourly earnings growth remaining unchanged at 2.5% y/y.