Strong jobs market but slowing wage growth

Based on the recent employment-related data it seems likely that today’s NFP number comes in higher than the consensus expectation of 193K jobs. At the same time, ADP reports slowing wage growth. Therefore, if today's numbers show a large upside deviation in the number of new jobs created and strong wage growth it’s probable that expectations for a tighter Fed policy increase. This would be dollar positive and could pressure risky assets. Let’s examine the recent data more closely.

Analysts expect to see 193K new jobs created in May. This would be considerably less than hiring in April (253K). However, the analyst consensus has been too conservative in 15 out of 16 NFP releases (since the beginning of 2022) so it’s likely they are too conservative this time also.

There is some weakness in manufacturing as shown by the latest ISM Manufacturing PMI report. There was a slight decline to 46.9 from April's 47.1, (47 expected). The decline was tiny but it marked the seventh consecutive month of contraction in the manufacturing sector.

On a brighter note, the numbers published by ADP were more positive. According to the ADP report, private businesses in the United States created 278K jobs in May. The number beat expectations and indicates hiring has remained strong. The services sector played a significant role in job creation, with leisure and hospitality, as well as trade/transportation/utilities, leading the way. The services sector is highly important as almost 78% of the US GDP comes from services.

The JOLTS report was also signalling a healthy job market. Job openings increased by 358K, reaching 10.1 million. The increase beat market expectations and marked a rebound from the previous two month's lower figures.

Initial jobless claims rose by 2,000 from the previous week to 232K. However, the increase was below market forecasts of 235K well below the levels seen in March. The fact that the current levels are well below the highs of March is another indication of tightness in the US labour market.

In April, the average hourly earnings increase was the fastest in nine months. But now the wage growth has slowed down. The ADP reports slowing wage increases for both job changers and those that stay in their jobs.

DJ

DJ could be turning bullish. A decisive break above 33 248 would open the way to 33 650. If the 33 248 level can’t be penetrated look for a move down to 32 680.

S&P 500

S&P 500 is bullish above 4167. Below the level, the market might trade down to 4136.

EURUSD

EURUSD is bullish above 1.0703. Below the level, the market probably trades down to 1.0670.

GBPCAD

GBPCAD is bullish above 1.6720. Below the level, we might see a move to 1.6650.

The Next Main Risk Events

• USD Average Hourly Earnings
• USD Non-Farm Employment Change
• USD Unemployment Rate

For more information and details see the TIOmarkets economic calendar.

Trade Safe!

Janne Muta
Chief Market Analyst
TIOmarkets

DISCLAIMER: TIOmarkets offers exclusively consultancy-free service. The views expressed in this blog are our opinions only and made available purely for educational and marketing purposes and do NOT constitute advice or investment recommendation (and should not be considered as such) and do not in any way constitute an invitation to acquire any financial instrument or product. TIOmarkets and its affiliates and consultants are not liable for any damages that may be caused by individual comments or statements by TIOmarkets analysis and assumes no liability with respect to the completeness and correctness of the content presented. The investor is solely responsible for the risk of his/her investment decisions. The analyses and comments presented do not include any consideration of your personal investment objectives, financial circumstances, or needs. The content has not been prepared in accordance with any legal requirements for financial analysis and must, therefore, be viewed by the reader as marketing information. TIOmarkets prohibits duplication or publication without explicit approval.

Janne Muta

Janne Muta holds an M.Sc in finance and has over 20 years experience in analysing and trading the financial markets.

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