NFP preview: Jobs growth to dip in May to 175k- ING

On Friday, the US employment report will be released. James Smith, Developed Markets Economist at ING point out the data may not be enough to remove the recent wave of economic pessimism but notes rising wages and consumer spending should continue to keep the economy underpinned. They expect jobs growth to dip in May to 175k following a bumper April figure 263k.

Key Quotes: 

“While we expect jobs growth to slow this time, we think this is likely to be caused more by supply constraints than by weaker demand. These shortages are continuing to put upward pressure on wages, which is one of the reasons we think markets are getting a bit ahead of themselves in pricing in a series of rate cuts in the immediate future.”

“The important thing for the Fed is that these skill shortages do appear to be translating into upward pressure on wages. The most recent headline wage growth figures have levelled off at 3.2% YoY, but there are broader signs that firms are also offering more non-wage benefits to attract staff – the April Fed Beige book talked of perks such as bonuses and expanded benefits packages. While we expect wage growth to remain at 3.2% in May, this is relatively close to cycle-highs and suggests markets may still be underestimating potential core inflationary pressures.”

“The household survey (which is different to the payroll-based measure of employment) does tend to be quite volatile, so we expect some correction this time around and that could drag the unemployment rate back up to 3.7% in the process.”