US NFP Preview: 9 major banks expectations from May month’s employment report

As the calendar flips over to June, the all-important May’s nonfarm payrolls report is landing today. As the clock ticks by, here are the expectations as forecasted by the economists and researchers of 9 major banks regarding the upcoming employment report.

All the 9 major banks expect that the May NFP to post a reading in between 170K to 210K, while they expect the unemployment rate to hover in between 4.3% to 4.5%, following a sharp tick lower last month.

TDS

Analysts at TDS expect May nonfarm payroll employment to rise at a respectable 170k pace in May after registering a robust 211k gain in April and that will put payrolls gains well above their breakeven rate and just below the 3-month average pace of 174k. Near record low jobless claims, several survey indicators and unwinding negative weather effects remain supportive of healthy job growth. ADP employment surprised to the upside in May; we are usually reluctant to take a strong signal from the release, but note that payrolls have outperformed the ADP print in the month of May on average since the crisis. Balancing this upside risk is the ISM nonmanufacturing employment index, which has averaged a subpar 51.5 over the prior two months and thus is consistent with job growth closer to 100k. Yet the pullback may revert as transitory factors (notably weather) could fade. Taken together, we see moderate upside risk to our payrolls forecast. The unemployment rate is expected to be unchanged at 4.4%. Risks are balanced this month, as a further decline to 4.3% cannot be exclude in line with the steady above-trend pace of job gains, while a bounce back to 4.5% is possible on a rise in labor force growth. Thus the latter case would still be favorable if accompanied by higher labor force participation. On wages, we look for a 0.2% m/m increase in average hourly earnings in May, factoring in some downward bias from calendar effects balanced by upside risks from further labor market tightening. That would leave the year-on-year pace slightly higher at 2.6%.

RBC CM

The most relevant and timely “hard data” on the employment front suggests that job growth continued to hum along in May. Not only are initial jobless claims still plumbing the depths near alltime lows (LF-adjusted), but withheld tax receipts (the stuff that comes out of your paycheck) are running near 7% above year-ago levels. This suggests that not only is firing extremely limited, but paychecks are increasing (firming headcount, increased pay, or some combination thereof). Accordingly, we expect headline and private NFP to come in at 200K for the month. The unemployment rate should remain unchanged at 4.4% following a sharp tick lower last month.

Nomura

We expect nonfarm payrolls to have increased by 210k in May (Consensus: 180k) and private payrolls to have increased by 205k (Consensus: 173k), implying a 5k gain in government jobs. Labor market indicators in various surveys remained elevated in May after falling modestly in April. The number of employees index in the Empire State survey declined slightly by 2.0pp to 11.9, and an equivalent indicator in the Philly Fed survey slipped 2.6pp to 17.3. Although these readings are still very high, slight decreases suggest nonfarm payroll employment may not increase as strongly as it did in April (211k). Additionally, initial and continuing unemployment insurance claims continued to trend lower in May, suggesting involuntary separations remain low. Moreover, considering the continued recovery in manufacturing activity, we forecast an increase of 10k in manufacturing sector employment. With a steady pace of job creation in recent months and a steady drop in continuing unemployment insurance, we expect the unemployment rate to have inched down to 4.3% in May (Consensus: 4.4%). Moreover, we expect a steady 0.2% m-o-m (2.51% y-o-y) increase in average hourly earnings in May, a slight slowdown from April’s 0.3% m-o-m (2.55% y-o-y) increase (Consensus: 0.2% m-o-m, 2.6% y-o-y).

Scotiabank

Claims remain very low which signals subdued firings. I guesstimate that 190,000 jobs were created in May. The fact that March only saw 79,000 jobs created and April landed at 211k suggests little deferred hiring activity for a two-month average of only 145,000 jobs created. That sits toward the lower end of the rolling two-month average changes of recent years and may indicate a cooling pace of employment growth after a temporary acceleration. Nominal wage growth has also been cooling somewhat from a high of 2.9% y/y in December to 2.5% in April and exhibiting signs of a top over the past year or so. In inflation-adjusted terms, wages are flat and not conducive to accelerated spending growth.

BBH

The US employment report is the economic highlight.  Although the non-farm payroll report is notoriously hard to forecast consistently accurate, the inputs like the weekly jobless claims, ADP, withholding taxes, and the ISM all suggest a reasonably strong report.  The median forecast in the Bloomberg survey is +182k.  We suspect the risk is asymmetrically tilted to a stronger rather than a weaker report. Given the three-month decline in the core PCE deflator, and comments by some Fed officials, including Governor Brainard, investors may be particularly sensitive to the average hourly earnings component of the jobs report.  A downside disappointment from the 0.2% expected increase could buoy the bond market and weigh on the dollar.  

Westpac

The nonfarm payrolls survey has continued to report strong employment growth through 2017, despite some volatile months. At 185k, the 2017 average monthly gain for payrolls is broadly unchanged from 2016. The household survey has been similarly strong, the unemployment rate falling to 4.4% in April. That figure is a material improvement from January's 4.8%, and is also below estimates of full employment. The share of the population employed is at its highest level since early-2009. Come May we expect another robust gain circa 170k, a touch below the 2017 average. Given stable participation, the unemployment rate should also be unchanged in the month.

Rabobank

The market consensus for US payrolls is 182K, down from 211K last month, while the unemployment rate is expected to remain unchanged at 4.4%. Crucially, however, average   earnings are seen up 0.2% m-o-m, down from 0.3% last time, though in y-o-y terms that should still see a tick up from 2.5% to 2.6%, i.e., around two-thirds the level we used to see before the GFC, and even lower than that actually, even if we can no longer see it on our screens due to official data revisions, which conveniently now start the series back in 2007: there’s no sense of history at all, either tragic or farcical, now.

BMO CM

Nonfarm payrolls are expected to moderate to 180,000 in May after rebounding sharply the prior month, holding close to the six-month trend (176,000). The prior report showed broad strength across industries, while surging work hours flagged a decent pickup in Q2 GDP. After plumbing cycle lows in April, the unemployment rate will likely edge up to 4.5%. This assumes some rebound in the participation rate, which has been grinding higher since mining three-decade lows in 2015. Broad measures of unemployment are also near cycle lows, reflecting a tightening job market. But labour shortages, even for some low-skilled positions, haven’t sparked a material upturn in wages. Growth in average hourly earnings actually retreated to 2.5% y/y last month. Still, a solid jobs report should cement expectations of a June 14 rate hike by the Fed.

Danske Bank

We forecast nonfarm payrolls rose 170,000 in May but note the ADP report released yesterday showed a stronger increase of 253,000. The Markit PMI employment index suggests slower growth of around 100,000. We estimate the unemployment rate increased from 4.4% to 4.5%, as labour force growth was weak at the end of 2016 and in the beginning of 2017 and we think we could see some reversion. We estimate average hourly earnings rose +0.2% m/m, implying an unchanged annual growth rate of 2.5% y/y.

Click here to read more about the NFP preview from our Chief Analyst Valeria Bednarik titled “Nonfarm Payrolls Preview: get ready to be disappointed. Again”