May Jobs Report Forecasts Predict Another Strong Month of Hiring

Forecasts are calling for the May jobs report to show yet another month of strong hiring, suggesting that any recession—should one take place at all—is still far on the horizon.

“Expectations are set for another strong month of jobs growth in May,” says Noah Wise, senior portfolio manager at Allspring Global Investments.

For the month of May, nonfarm payroll employment is forecast to rise by just shy of 200,000, which, while down from the number of new jobs added in April, still reflects a jobs market that is chugging along.

Jobs Report Forecasts Feed Hope for Avoiding Recession

If the May jobs report comes in as expected, it “would represent a slight deceleration from last month’s number, but one that’s still very strong by historical standards,” says Wise.

The “soft landing” that the Federal Reserve and investors are hoping for—in which the Fed slows inflation down without bringing the economy into recession—is within reach, Wise says.

“So far, we’ve been able to have strong jobs growth and more people returning to the labor market without pushing the unemployment rate up in any meaningful way,” he says. “If we can keep the unemployment rate relatively low, that opens up the door to the immaculate disinflation story.”

For the markets, the jobs report comes at a time of heightened jitters in Washington around the passage of a debt-ceiling increase, notes Warren Pierson, managing director and co-chief investment officer at Baird Advisors.

“There’s a lot of volatility, a lot of anxiety,” Pierson says. “We’re likely to see even more volatility in reaction to the jobs report, particularly if the results are much different than the expectations.”

Could a Strong Jobs Report Prompt More Fed Rate Hikes?

That could especially be the case if the jobs report revives expectations for another increase in interest rates from the Fed.

Immediately after the Fed raised interest rates at its May policy-setting meeting, investors began to expect the Fed to switch gears and lower rates as soon as the third quarter of this year. However, those expectations have scaled back, and the Fed is now seen holding rates steady at least into the fourth quarter, according to the CME FedWatch tool.

If the May report shows “stronger job growth and unemployment not going back up, that could get the market expecting that the Fed might have to do more,” Pierson says. He adds that the strength of average hourly earnings will also be factored into the equation. If wage pressures remain high, that could feed concerns about the ability of the Fed to make progress in lowering inflation.

The bottom line is, he says, “the labor market has remained pretty tight.”

May Jobs Report Forecast Consensus

• Nonfarm payroll employment to rise 191,500 versus the 253,000 increase in April, according to FactSet.
• Unemployment rate to come in at 3.5%, which would be a slight increase from 3.4% in April.
• Hourly earnings to rise 0.3%, a modest slowdown from 0.5% in April.

After the April jobs report showed another month of strong hiring, economists are expecting healthy job gains to have continued in May. Nonfarm payroll employment is expected to post an increase of 191,500 for the month, according to FactSet’s consensus estimates. That would follow an increase of 253,000 in April and 165,000 in March.

Hourly earnings are expected to rise 0.3% after increasing 0.5% in April. Consensus forecasts show the unemployment rate ticking upward to 3.5% in the May jobs report, remaining near historically low levels.

Why Has the Jobs Market Stayed So Strong?

Fueling the continued strength in the labor market has been healthy consumer demand alongside changing demographic trends, according to Mary Ellen Stanek, founder, managing director, and co-chief investment officer at Baird Advisors.

“We’ve seen pretty healthy demand throughout the economy,” Stanek says. “Consumer demand for travel-related sectors, services and experiences remains high—in fact, quite surprisingly high.”

Consumers are coming out of a three-year period of limited travel and activities after the onset of the coronavirus pandemic. “They are going in just the opposite direction now,” Stanek says.

At the same time, demographic trends are changing in ways that complicate the picture for the jobs market.

“Certain types of workers faced burnout coming out of the pandemic,” Stanek says. “The nursing shortage is one example

Part of the shortage of nurses was caused by a pure rise in demand resulting from the pandemic, Stanek says, but nurses also retired or walked away from the industry.

“Overall, as the labor market remains healthy, there aren’t enough workers available,” she says. “It’s hard to alter that.”

Here are some key data points to watch for in the May jobs report:

Headline Jobs Growth

“The Fed is looking for jobs growth to slow to a steadier pace,” says Allspring’s Wise. “If we start to see the three-month average in the neighborhood of 100,000 new jobs, that would be consistent with healthy long-term labor market growth.”

The Fed has stated that monthly job growth near 100,000 would help it reach its long-term inflation target of 2% as measured by the Personal Consumption Expenditures Price Index.

So far, Wise says, “We’ve been creating many more jobs than that for quite a while.” The three-month average headline payroll number stood at 222,000 in April and 295,000 in March.

Wage Growth

In April, average hourly earnings rose at a robust 4.4% from a year earlier, after rising at a similar rate through the beginning of the year.

“Wage growth averaged between 2.0% and 2.5% for the decade following the financial crisis,” Wise says. “We are a full 2% above that for right now.”

“Wage growth is a notable area of concern for monetary policy and how sticky inflation will be going forward,” Wise says. “There have been some expectations that we would see some slowing wage growth, but so far it has been very stable and strong.”

Wise says that for inflation to fall to the Fed’s long-term target, wage growth must slow to around 3%.

Average Weekly Hours

The average workweek can be a leading indicator of labor force trends, as companies will trim the hours of their existing labor force before beginning layoffs, Wise says.

“A key data point that doesn’t get as much direct attention is average weekly hours,” he says.

Average weekly hours of production and nonsupervisory employees have hovered between 33.6 and 34.4 in 2023.

“If weekly hours worked moves below current levels, that indicates the next step will be more layoffs,” Wise says.