All About Jobs

It doesn't get more fundamental than jobs. And tomorrow morning, the U.S. Labor Department will release its nonfarm payrolls report for May. A month ago, the numbers were disappointing, complicating the narrative around the reopening. Now economists and analysts are waiting to see whether that was just a blip. The forecasts call for a gain of 700,000 jobs, after a rise of 266,000 in April.  

There are reasons for optimism, based on today's release of other jobs-related data. Lisa Beilfuss explains:

Payroll provider ADP said private payrolls increased by 978,000 last month, far surpassing the 650,000 rise economists polled by FactSet had predicted. Companies hired at the fastest clip since August as the service sector comes back to life; the leisure and hospitality industries represented almost half of overall hiring in May.

First-time claims for jobless benefits, meanwhile, fell to yet another pandemic low. The number of people filing for unemployment insurance fell 20,000 in the latest week, to a seasonally adjusted 385,000. Economists expected a smaller decline to 395,000. The four-week moving average for the series, which helps smooth out some of the volatility in the weekly employment indicator, also fell to a new pandemic low of 444,000. For context, that measure compares with monthly averages of 621,000 and 722,000 in April and March.  

Jefferies economists Aneta Markowska and Thomas Simons are less sanguine in the near-term and predict a May gain of 450,000. But they see any weakness as short-lived. Here's what they wrote to clients this week: 

Even if employment disappoints again in May, investors will likely dismiss it as temporary. We still expect the pace of hiring to pick up steam in June and July as unemployment programs end in 24 states and vaccination rates rise. Any lingering shortages are more likely to be resolved via higher wages rather than persistently weak employment.

...The reasons for the current labor shortage are well known: generous unemployment benefits, school closures, and lingering health concerns. Most of these issues should be resolved by September as schools reopen and pandemic UI [unemployment insurance] benefits expire on Sept. 6.

Matthew Klein has more here on what to watch in tomorrow's report.