The holiday-compressed US trading week features a daunting data docket that’ll test investors’ mettle after a fledging rebound on Wall Street helped the S&P to its best week since November of 2020.
May’s NFP headline is the marquee print, but in the days leading up to Friday’s jobs report, traders will get updates on home prices, consumer confidence, job openings and manufacturing activity.
ISM manufacturing, due Wednesday, is seen at 54.8. It’ll be closely watched following a big miss last month. Stocks have nearly caught all the way down to the survey’s “reality” (figure below).
Regional Fed surveys were almost uniformly poor in May, which raises the stakes, especially with the recession narrative gathering adherents. ISM services will follow Friday’s jobs report.
Economists expect another strong showing from payrolls. Consensus is around 325,000 for the headline NFP print (figure below).
An in-line reading would punctuate a virtually uninterrupted streak of outsized monthly gains. Although April marked the slowest pace of job creation since September, it wasn’t indicative of a proper slowdown. An encore may help allay fears of a looming recession.
The robust labor market is both a source of comfort and concern. On one hand, jobs gains help offset the recession gloom. On the other hand, ongoing labor market tightness, especially to the extent it manifests in sharply higher wages, is an argument for aggressive policy tightening to short circuit the wage-price spiral that’s apparent to everyone except the Fed.
The (unfortunate) reality is that Jerome Powell likely needs to engineer a higher unemployment rate to help cool inflation. Policymakers claim that’s not necessarily true. The record gap between job openings and Americans officially counted as unemployed (familiar figure below) ostensibly represents superfluous positions if only demand would slow.
One path to a soft landing entails siphoning those empty positions by cooling demand so as to render them unnecessary. That’s easier said than done, of course. It suggests the Fed is capable of micromanaging the world’s largest economy, a wholly dubious proposition.
I mention that not just because payrolls are due Friday, and not just because it’s the critical dynamic, but also because JOLTS are on deck Wednesday. Month after month, market participants squint for signs that openings are falling. And every month, traders are disappointed. In fact, the last JOLTS figures showed new records for both openings and quits.
Market participants will also watch ADP closely, not because it’s been a reliable predictor of NFP in the pandemic era, but rather because April’s report suggested small businesses shed an alarming number of jobs last month. A few days later, NFIB’s survey of small business owners showed the net percentage expecting better business conditions over the next six months fell to a new record low.
“It’s too early in the cycle to point toward the FOMC’s actions as having any impact on the jobs landscape,” BMO’s Ian Lyngen and Ben Jeffery said, previewing May payrolls. “Focus on the participation rate has been increasing as the cycle extends, primarily because this measure of engagement has been lagging expectations, so much so that we’re left to ponder the lasting impact of behavioral changes that took place during the pandemic.”
There’s widespread agreement that stupendous wealth gains associated with surging stocks and record-high home prices catalyzed a wave of early retirements, contributing to reduced participation. It’s less clear what the impact of soaring asset prices was on younger cohorts.
One question going forward is whether falling stock prices and a cooler housing market will compel some workers who put their feet up to reconsider. “It’s clear many workers 55-years and older have left the labor force with no intention of reengaging,” BMO’s Lyngen and Jeffery went on to say. “The most relevant unknown is whether those in the 45-54 age range who have opted out of the labor market will return during this cycle.”
Also on deck this week in the US: The Dallas Fed survey, factory orders and the usual cacophony of Fed speakers, including Williams, Bullard, Mester and Brainard.
““It’s clear many workers 55-years and older have left the labor force with no intention of reengaging,” BMO’s Lyngen and Jeffery went on to say. “The most relevant unknown is whether those in the 45-54 age range who have opted out of the labor market will return during this cycle.” Amazing. How are all these dropouts paying for food and stuff? Are they living with their moms? Wait, they are the moms and dads. This kind of commentary puts me in mind of the movie “Slackers.”
What makes you so sure they are slacking, especially since they can pay for food and stuff?
This does not make sense. There must be something incorrect with the “data”.
For being so “data dependent” there seem to be too many times where “…everyone but the fed agrees” can be applied.
I wouldn’t mind so much if they didn’t fallback to replacing it with reassuring everyone of their transitory, softish, necessary tools etc.
Quit telling us your doing your job and do it last year.
The cohort data is just the data. Anyone can pull it up. It’s BLS data. It’s available to the public. We can only work with and comment on what we have.
Not so sure how well this applies to the 45-54 cohort, but certainly the 35-44 cohort must include many families that have gone from two incomes to one income. In many cases the second income might not have been adding a whole lot after the costs of childcare, commuting, wardrobe, etc are considered. Or even if the second income added something, childcare became essentially unavailable, or more expensive. As I commented a few months ago, I did at one point go looking for data to support this, and didn’t find it. But I didn’t try all that hard.
The big picture here is that we went from a society with relatively few career opportunities for women, but in which a single income could support a family, to one where there are many more opportunities for women, but it is much more difficult for a family to make it on a single income. But the microeconomic calculation for a family today has many factors that might have changed in the past couple of years: many people are now able to work remotely from a more affordable location, the cost and availability of childcare have changed, schools were remote in many places requiring a parent to be at home, and more people seem to be opting for home schooling.
Recessions happen near the peak in employment- if one thinks about that it makes sense. That is usually when the economy overheats and FOMC tightens policy. We just had a very unusual and compressed cycle- but in other ways very typical. Employment is at best a coincident indicator- usually it is a lagging indicator. One analyst I follow, suggested growth peaked in April , 2021 based on data he follows. Inflation is going to fall when some of the oddball events, shocks is what the economics profession calls them, wear off. At some point, Russia/Ukraine will be resolved and at some point the pandemic will become endemic worldwide and will no longer be as great a factor. Dr. Osterholm projected 5 years at the beginning- that would place it at 2025, though maybe we can shorten that by a year given the amazing progress on vaccination and antivirals (2024). Russia/Ukraine probably on a shorter time horizon than that. Between now and then many of the economic ideas we hang our hat on, should be viewed with a grain of salt.
The labor force is also being affected by more freelancing and self-employment.
Business formation activity remains very high. Each month of the past two years, from 100K to 200K more new EINs have being issued than during the pre-pandemic normal. Most of these are solo businesses but formation of businesses likely to employ others is also elevated.
https://www.census.gov/econ/bfs/pdf/bfs_current.pdf
During 2020 some suggested these new businesses were just shells used to obtain pandemic benefits, or represented laid-off workers who would return to traditional employment as soon as possible. Those explanations do not seem correct.
If self-employment has a larger role today, that implies the unfilled jobs statistic may not accurately show much room the Fed has to suppress demand.