- U.S. payroll jobs expected to show a big increase
- Stocks see some support as Biden floats 15% minimum corporate tax idea
U.S. payroll jobs expected to show a big increase — The markets will be carefully watching today’s payroll report to see if hiring surged in May, as expected. The consensus is for today’s May payroll report to show a rise of +653,000, strengthening after April’s weak report of +266,000.
Payrolls have so far recovered by +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.
Yesterday’s May ADP report of +978,000 added to April’s revised increase of +654,000 and was much stronger than expectations of +650,000. Yesterday’s ADP report fueled hopes for a stronger-than-expected payroll report today.
The markets last month were very disappointed with the April payroll report of +266,000, which was far below the consensus at the time of +995,000. However, 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. It took some time for business restrictions to be lifted and for people to become more comfortable traveling and going out to restaurants, leading to business decisions to hire more people.
After a decision to hire more people, it can take a month or more to hire new employees by the time a business advertises a job, conducts interviews, and makes a final decision. All those factors mean that a surge in employment might still occur, but be delayed into May and this summer.
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.
Today’s May unemployment rate is expected to show a decline of -0.2 points 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 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 keeping upward pressure on the unemployment rate.
Stocks see some support as Biden floats 15% minimum corporate tax idea — The stock market yesterday received some early support on reports that President Biden floated the idea of a minimum 15% corporate tax to finance a bipartisan infrastructure program. The stock market hoped that meant that Mr. Biden might be willing to forgo his idea of raising the corporate tax all the way from 21% to 28%.
However, Bloomberg later reported that Mr. Biden could still pursue the corporate tax hike as part of another bill. Mr. Biden’s idea may be to use a 15% minimum corporate tax to finance a smaller bipartisan infrastructure bill, while still using the corporate tax hike to 28% to fund a larger Democratic jobs and family bill.
In any case, there is little chance that a bipartisan infrastructure bill will come to fruition. The two sides are far apart on the size of an infrastructure bill and how to fund the bill. Mr. Biden is pursuing a bipartisan infrastructure bill since he campaigned on a promise to negotiate with Republicans and since he needs to convince moderate Democratic Senators like Senators Manchin and Sinema that he made every effort to reach bipartisan compromise.
Mr. Biden is due to speak again today with Republican Senator Capito, who is spearheading the attempt to find a bipartisan compromise. However, time is running out for a deal since Speaker Pelosi has said she wants to get an infrastructure bill passed by the fourth of July. Senator Majority Leader Schumer has said the Senate will work on a infrastructure bill in July.
Parallel to the Biden-Capito talks, the House is proceeding with the process of writing an infrastructure bill that resembles Mr. Biden’s $2.25 trillion American Jobs Plan. House committees in coming days will be holding hearings to mark up legislation that would be part of the Democratic infrastructure bill.
