- U.S. ADP jobs expected to show another large increase
- U.S. weekly unemployment claims expected to fall to new 14-month lows
- U.S. ISM services index expected to remain very strong
U.S. ADP jobs expected to show another large increase — The markets will be carefully watching today’s ADP report and tomorrow’s payroll report to see if hiring picked up in May. The ADP report in April showed a strong gain of 742,000, but the payroll report was surprisingly weak at +266,000.
April may have been too soon to expect a big jump in new jobs since the pandemic infection levels didn’t plunge until February and March, and it took some time for business restrictions to be lifted and for people to become more comfortable traveling and going out to restaurants. Also, it can take a month or two to hire new people by the time a business advertises a job, conducts interviews, and makes a final decision. The markets are expecting to see big job increases in May and June.
The markets are carefully watching the labor market since the Fed will start raising interest rates when its labor goals have been met. The Fed’s inflation goals have already essentially been met due to the current inflation surge. The markets are not expecting the Fed to start raising interest rates until early 2023, but that could happen much sooner if hiring surges and the unemployment rate falls back towards pre-pandemic levels.
The consensus is for today’s May ADP employment report to show an increase of +650,000, which would be a bit weaker than April’s strong report of +742,000. ADP jobs have risen by a total of +11.4 million from last year’s pandemic trough, need to rise by another 8.2 million to match the pre-pandemic record high posted in February 2020.
Looking ahead to tomorrow’s May unemployment report, the consensus is for May payrolls to rise +653,000, strengthening after April’s weak report of +266,000. Payrolls have recovered by a total of +14.1 million jobs from last year’s pandemic trough, but need to recover by another 8.2 million jobs to match the pre-pandemic record high posted in February 2020. Payroll jobs have so far recovered only 63% of last year’s plunge.
Tomorrow’s May unemployment rate is expected to show a small decline of -0.2 to 5.9%, more than reversing April’s small +0.1 point increase to 6.1%. Today’s expected unemployment rate of 5.9% would fall below March’s level of 6.0% to post a new 14-month low.
The unemployment rate still has a long way to go before matching the pre-pandemic record low of 3.5% posted in February 2020 and in late 2019. A further decline in the unemployment rate is likely to be slow because more people will be drawn back into the labor market as jobs become available, thus increasing the pool of available workers and putting upward pressure on the unemployment rate.
U.S. weekly unemployment claims expected to fall to new 14-month lows — Today’s weekly unemployment claims report is expected to show a continued, steady improvement in the U.S. labor market.
The consensus is for today’s initial unemployment claims report to show a -18,000 decline to 388,000, adding to last week’s -38,000 decline to 406,000. Meanwhile, today’s continuing claims report is expected to show a -27,000 decline to 3.615 million, adding to last week’s -96,000 decline to 3.642 million.
The initial claims level last week fell to a new 14-month low. The continuing claims series last week of 3.642 million was just slightly above the 14-month low of 3.640 million posted in the last week of April.
Relative to the pre-pandemic level in late-February 2020, the initial claims series is still elevated by 190,000, while the continuing claims series is still elevated by 1.934 million.
U.S. ISM services index expected to remain very strong — The consensus is for today’s May ISM services index to show a +0.3 point increase to 63.0, recovering part of April’s -1.0 point decline to 62.7. The ISM services index is in very strong shape at only 1.0 point below March’s record high of 63.7 (data since 1997).
Business executives in the U.S. service sectors are nearly euphoric due to the impending conclusion of the pandemic and the promise of a return to a normal economy. However, there are problems that include a surge in prices, a shortage of some goods and services, and reports of some difficulty in hiring new employees.
The markets will be watching today’s ISM services price index for an update on how inflation is affecting the U.S. services sectors. The prices-paid index in April rose to a 13-year high of 76.8.
Markit has already released its U.S. services PMI for early May, and it showed a sharp increase of +5.4% points to 70.1, which is even higher than the ISM services index.
The ISM manufacturing index for May has already been released and showed a +0.5 point increase to 61.2, which was just mildly below March’s 37-year high of 64.7. Manufacturing sentiment remains very strong, but fell back a bit in May due to supply chain problems, the chip shortage, and high prices. The ISM manufacturing prices-paid index in May of 88.0 was just mildly below the record high of 89.6 posted in April.
