US: Nonfarm payrolls likely to have increased by 210k in May - Nomura

The analysis team at Nomura expects US 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.

Key Quotes

“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. Hard data on this sector, such as core manufacturing output in the industrial production report and core capital goods shipments, have remained elevated in recent months. Coupled with elevated business sentiment, the manufacturing sector is likely to see a decent gain in hiring. Today’s ADP report, coming in above expectations (+253k) adds some upside risk to our forecast.”

“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%). Household employment increased healthily by 156k in April while reverting to trend after two outsized gains in March and February. Increasing household employment may have put downward pressure on the unemployment rate. However, our forecast has a slight downside risk from the possibility that favorable labor market conditions over the past few months may have motivated discouraged workers to re-enter the labor force in search of employment, pushing up the unemployment rate.”

“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). Although labor market slack has been diminishing quickly, average hourly earnings growth has not accelerated materially. A definitive explanation for the lack of acceleration remains elusive. Potential explanations could be a recent decrease in employer-to-employer transitions and industry composition changes.”