The US nonfarm payrolls report for the month of May will be published on Friday by the Labor Department at 13:30 BST (08:30 ET). Following record job losses in April as a result of the coronavirus pandemic, most economists are expecting another big fall in employment in May and a surge in the unemployment rate.
Economists surveyed by Bloomberg expect another 8 million job losses to have been registered in May and predict the unemployment rate has spiked to 19.5%, the highest on record dating back to the 1930s. In April, job losses had hit a record 20.5 million and the unemployment rate surged to 14.7% from 4.4% previously.
So, these are the key numbers to watch:
- Headline jobs expected to show -8.0m vs. -20.5m previous month
- Unemployment rate seen at 19.5% vs. 14.7%
But given the heightened uncertainty surrounding jobs, the actual headline number could deviate significantly from expectations. It doesn’t necessarily mean the number will disappoint expectations. Indeed, if anything, some of this week’s pre-NFP leading indicators have beaten expectations. So, we may well see a number below 8 million. However, the employment indicators can be misleading, so take nothing for granted.
Pre-NFP leading indicators
All the leading employment indicators released throughout this week point to further sharp job losses for May. However, they have shown improvement from their very bad levels in April, meaning the highly likely job losses in May are probably not going to be as bad as per analyst expectations above.
Here is a summary of the pre-NFP leading indicators:
- ADP: Private non-farm companies cut 2.76 million jobs vs. 9.0m expected
- ISM manufacturing PMI employment component 32.1 in May vs. 27.5 in April (+4.6)
- ISM non-manufacturing PMI employment component 31.8 in May vs. 30.0 in April (+1.8)
- Challenger: Job cuts announced by US employers totalled 397,016 in May, down 40.8% from April’s record 671,129
- Jobless claims in the 5 weeks of May totalled 12.59 million, with the average weekly claims falling from above 3m to under 2m in the last week of May. In all 5 occasions, claims came in worse than expected. On average, surveyed analysts had underestimated claims by around 768K for the 5 weeks.
Our expectations
With the above pre-NFP leading indicators coming in very mixed, it is almost impossible to predict with any degree of confidence what the actual headline jobs number is going to look like. The fact job cuts were 40.8% lower compared to April, this points to around another 8 million drop in non-farm employment. However, judging by the ADP’s estimate, job losses could be a lot lower. However, the ISM non-manufacturing PMI only showed a modest rise, further complicating the picture. So, taking everything into account, like most other analyst we don’t expect job losses will be anywhere near April’s historic levels. But we are hopefully that the headline number will be below the analyst estimates of 8m given the degree by which the ADP’s estimate beat expectations.
NFP trade ideas:
- If the jobs number comes in significantly better than expected, it will likely boost risk appetite as it will raise hopes the economy is recovering faster than expected. In this case, we would favour looking for long dollar positions against haven currencies such as the yen or franc. So, the USD/JPY or USD/CHF long trades is what we would concentrate on.
- If the jobs number comes in roughly in line with the estimates or slightly below expectations, then this will underpin expectations the Fed will keep policy extraordinary loose to support the economy. As such, the dollar could weaken further, especially against the likes of the pound and the euro – with the latter surging higher on Thursday in response to the European Central Bank’s decision to increase the size and duration of its Pandemic Emergency Purchase Program (PEPP).
- However, if the jobs data turns out to be very poor, then paradoxically the dollar could rally (possibly after an initial knee-jerk reaction lower) as concerns over recovery could boost the dollar’s safe haven appeal. In this case, the dollar may perform well against commodity currencies, though gold being a safe haven commodity may ignore the dollar and rise anyway.
Don’t forget to join myself and my colleague Victor for our NFP preview webinar at 11:30 BST on Friday. You can register
HERE.