US jobs report: what to watch for

Financial Times Financial Times

 

Verizon strike and other short-term factors to skew critical jobs report before Fed rate decision

A strike by more than 30,000 Verizon Communications workers, along with other temporary factors, are expected to affect the final US jobs report before the Federal Reserve’s June policy-setting meeting, Wall Street economists have warned.

Economists expect the figures to show the American economy added 160,000 jobs last month, matching the pace recorded in April but much fewer than the average monthly job creation this year of 192,000.

The jobs figures are likely to be suppressed by a strike of about 35,000 Verizon workers that began in late April and stretched through May.

“Although replacement workers hired by Verizon will blunt the effect of the roughly 35,000 strikers on payroll gains, to what extent is difficult to say,” said Joshua Shapiro, chief US economist at MFR.

He added that “replacement workers likely worked fewer hours and were paid less than the strikers, so there could be some effect on the workweek and earnings data as well”.

Nevertheless, the strike is not expected to affect the jobless rate, which is forecast to have declined 0.1 percentage point on a month-on-month basis to 4.9 per cent, said David Kelly, chief global strategist at the JPMorgan Funds.

That is because the unemployment figures are calculated based on the so-called household survey, which recognises employment slightly differently than the establishment survey used to tabulate job gains.

A bout of “unusually cool” and “very wet” weather in certain US regions may have also hit job growth estimates, said Ward McCarthy, chief financial economist at Jefferies.

In addition, Mr McCarthy said he expected a “weak reading” on employment at retailers, following a mild decline in April, as payback for gains that averaged more than 50,000 a month in the first quarter of 2016.

The May jobs report may take on added significance since it will provide Fed policymakers with the last big snapshot on the strength of the labour market ahead of the two-day Federal Open Market Committee meeting ending on June 15.

Market expectations for a rate rise this summer have risen sharply in recent weeks as top Fed officials, including chief Janet Yellen, have said that the economy is likely strong enough to withstand a gradual increase in interest rates now that the financial-market tumult and volatility in global economies seen early in 2016 have subsided.

A large part of the Fed’s more bullish assessment has come as a result of strength in the jobs market that has brought the unemployment rate close to levels that are seen as consistent with the natural level in a properly functioning economy.

The central bank’s anecdotal Beige Book report, released on Wednesday, indicated that “tight labour markets were widely noted in most [of the Fed’s dozen] districts” and that wages grew “modestly” — one of many recent indications that a stronger uptick in wage growth that has eluded policymakers throughout the economic recovery may finally be coming to fruition.