- U.S. payroll growth expected to improve in June
- U.S. trade deficit expected to widen but remain below March’s record high
- U.S. May factory orders expected to improve
U.S. payroll growth expected to improve in June — The job recovery seen in the past several months has been slower than expected. U.S. Covid infections in the past five months have plunged since peaking in January, allowing the economy to slowly reopen.
However, the speed of job gains has been slowed by a variety of factors, including (1) a mismatch of job availability versus employee skills, (2) the need for some people to stay home with children during the tail-end of the pandemic, (3) the fact that about half of the U.S. population is still not fully vaccinated, causing safety concerns for some people who are thinking about returning to work, and (4) questions about whether extra unemployment benefits are causing some people to delay going back to work.
Fed Chair Powell, in his recent post-FOMC meeting press conference, said that these factors “should wane in coming months against a backdrop of rising vaccinations, leading to more rapid gains in employment. Looking ahead, FOMC participants project the labor market to continue to improve, with the median projection for the unemployment rate standing at 4.5% at the end of this year and declining to 3.5% by the end of 2023.
The consensus is for today’s June payroll report to show an increase of +700,000, improving from May’s rise of +559,000. Payrolls have risen by a total of 14.7 million jobs from the pandemic trough. However, payrolls have recovered only 66% of the pandemic plunge and need to rise by another 7.6 million jobs to match the record high seen in February 2020.
There was some good news on the labor front earlier this week, with the report that June ADP employment rose by +692,000, stronger than expectations of +600,000. However, that news was offset to some extent by the -92,000 downward revision for the May ADP report to +886,000 from +978,000. ADP jobs have risen by a monthly average of +733,000 over the past three months (April-June). ADP jobs have recovered 65% of the pandemic job losses and need to rise by another 6.8 million to match the pre-pandemic record high.
Payroll growth has lagged ADP job growth in recent months. Over the 3-month period of March-May, ADP jobs showed an average monthly increase of +676,000 while payrolls showed an average monthly rise of only +419,000. It remains to be seen whether payrolls are under-counting job growth or whether ADP jobs are over-counting job growth, but the two are likely to converge at some point.
The consensus is for today’s June unemployment rate to fall -0.2 points to 5.6%, which would be a new 15-month low. The U.S. unemployment rate in May fell to a 14-month low of 5.8%, but was still well above the pre-pandemic record low of 3.5%.
Further progress in bringing down the unemployment rate will be slower because more people will be attracted back into the labor market to look for a job as jobs become more plentiful, thus increasing the pool of persons who are considered unemployed for purposes of calculating the unemployment rate.
U.S. trade deficit expected to widen but remain below March’s record high — The consensus is for today’s May U.S. trade deficit to widen to -$71.4 billion from -$68.9 billion in April. However, today’s expected deficit of -$71.4 billion would be moderately below the record high of -$75.0 posted in March.
The U.S. trade deficit has soared during the pandemic since imports have been stronger than exports. Demand is strong for imports from the U.S. economy, which is doing much better than its trading partners due to the faster vaccination rate and the massive amount of fiscal stimulus from Washington.
U.S. imports in March posted a record high and were 11% higher than the pre-pandemic level seen in February 2020. By contrast, U.S. exports have not yet recovered the plunge seen since 2018, let alone moved to record highs.
The wide U.S. trade deficit continues to be a drag on GDP growth. The wide trade deficit also continues to be a long-term underlying bearish factor for the dollar.
U.S. May factory orders expected to improve — The consensus is for today’s May factory orders report to show an increase of +1.6% m/m, which would more than overcome April’s -0.6% decline. Excluding transportation, April factory orders rose by +0.5% m/m.
U.S. factory orders remain in very strong shape due to the soaring U.S. economy and improved economic growth overseas. Factory orders fell a bit in April but were at a record high in March and were +5.4% higher than the pre-pandemic level seen in February 2020.
U.S. manufacturing confidence remains in very strong shape as seen by the fact that the ISM manufacturing index in June was at 60.6. U.S. manufacturing executives remain very bullish about the business prospects of the U.S. manufacturing sector as the U.S. economy soars. The consensus is for U.S. GDP in Q2 to soar by +10.0%, and then remain strong at +7.0% in Q3 and +5.0% in Q4. For calendar year 2021, the consensus is for growth of +6.6%, which would be the strongest annual growth rate in 37 years and would easily overcome the -3.5% decline seen in 2020.
