US NFP Preview: An important factor for Fed’s rate decision – Danske Bank

Research Team at Danske Bank, suggests that the US jobs report for May will be an important factor for the Fed’s rate decision.

Key Quotes

“A strong jobs report will support the Fed’s view that the labour market continues to tighten and increase the possibility of a summer hike further.

We estimate non-farm payrolls increased 160,000 in May in line with consensus, but below the 3M average of 200,000, as we have indicators suggesting employment growth was to the weaker side in May. Firstly, the Markit PMI composite employment index declined to a two-year low in May, which in combination with higher initial jobless claims in May indicates slower job growth. Secondly, there is a strike in the US firm Verizon going on for the sixth consecutive week concerning around 35.000 workers. Workers on strike receiving no payment are likely to fall out of the payrolls count and hence affect total employment negatively. We expect the unemployment rate fell to 4.9% in May, but it is a close call.

We expect average hourly earnings continued to grow around 0.25% m/m in May, which is slightly above the average monthly growth since 2015 of 0.2% m/m. If we are right, the annual growth rate was unchanged at 2.5% y/y.

Looking at the details in the report, we expect employment growth was driven mainly by the service sector although we expect service employment growth slowed to 140,000 in May, the lowest gain since January. We estimate manufacturing employment was unchanged in May."