The Day Ahead: All Eyes on May Employment Figures
Investors are timid ahead of the U.S. employment report for May. The numbers are supposed to be broadly positive, but an hour before the report, equity futures are sharply downwards following two straight days of gains.
Ninety minutes before the opening bell, Dow futures are off 85 points to 10,173 and S&P 500 futures are down 8.00 points to 1,095.75. The 2-year Treasury note yield is 2 basis points lower at 0.802% and the benchmark 10-year Treasury note is 3bps lower at 3.34%.
NYMEX crude oil is also down 0.39 to 74.20 Gold is off 1.40 to 1206.90.
Overnight, the Euro fell below $1.21 for the first time since April 2006, and is now at $1.2118. Meantime, the US dollar index, a measure of the dollar against an array of currencies, slipped two basis points to 87.11
Key Events Today:
8:30 ― The month’s most important data report, the Nonfarm Payrolls Employment Situation report, is expected to bring good news to financial markets with more than half a million jobs created in May. This will be the fifth straight month of jobs growth in the economy, in part due to Census hiring, which created hundreds of thousands of new jobs. In April the survey reported that 290k jobs were created in the month ― the most in four years ― while 230k jobs were created in March. For May, a poll among economists points to 540k new jobs, with predictions ranging from 225k to 635k.
“We are assuming 330,000 temporary Census hires by the federal government, 20,000 jobs lost in state and local government, and 170,000 added in the private sector,” said economists at IHS Global Insight. “The private sector figure is the one to watch. A gain of 170,000 jobs would be less than the 231,000 jobs added in April, but still enough to preserve the gradual upward trend in the labor market.”
Economists at BMO Capital Markets are more optimistic with a 700k forecast, mostly due to a belief that 500k Census jobs were added to the payroll.
“Ignore the headline figure and focus on the private sector figure, which should increase for the fifth straight month and stay relatively strong within the range of the previous two months (231k in April and 174k in March),” they wrote. “In the 15 years prior to the Great Recession, private payrolls rose an average of 139k per month, so the expected gain in May would be decidedly above the norm.”
Despite such robust growth, the unemployment rate should fall just one-tenth to 9.8%, in part because as more people get jobs, more begin to look for work, causing the pool of ‘unemployed’ to remain stubbornly high.
“The labor market is expected to gain momentum in May as job creation accelerates in the private sector and the Census adds additional temporary jobs,” said economists at BBVA. “Nevertheless, the unemployment rate is expected to remain at 9.9% due to an influx of new labor market participants as formerly discouraged workers resume their job search. Consumers have been reacting well to the payroll data, so a positive surprise in this report could significantly boost consumer confidence and consumer spending.”
Lastly, Ian Shepherdson from HFE said the survey is unpredictable.
“We’re guessing payrolls will jump by about 500k as hiring for the Census accelerates, but just about anything could happen. Private payrolls should rise about 150k, and we expect April’s 231k private number to be revised down.”
8:45 ― Richard Fisher, president of the Dallas Fed, speaks on banking issues at an event in Dallas.
9:30 ― Dennis Lockhart, president of the Atlanta Fed, speaks on the economic outlook and banking to the Alabama Bankers Association annual convention in Braselton, Georgia.