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Investors will be watching the May nonfarm payrolls report for more clarity on whether the Federal Reserve can ease its inflation measures.
Economists surveyed by Dow Jones expect the Bureau of Labor Statistics to report that the U.S. economy added 190,000 jobs this month, up slightly from April’s gain of 175,000.
Additionally, markets will be closely watching wage figures, with average hourly earnings expected to grow by 0.3%, slightly higher than last month, bringing the 12-month increase to 3.9%, the same as last month, suggesting the central bank still has some work to do.
Other employment indicators this week showed private payroll growth slowing, with ADP reporting a slight increase of 152,000, and initial claims for unemployment insurance rose slightly.
“The May jobs report is especially important now,” Citigroup economist Andrew Hollenhorst said in a note. “The weak numbers are [of less than 175,000 jobs and an unemployment rate of 4% or more] “This will be the final evidence that the economic slowdown will continue, while the unexpected increase will reinforce the notion that there is no urgency to cut rates and send Treasury yields rising again.”
Citi expects the report to show just 140,000 jobs added, with the unemployment rate hitting 4% for the first time since January 2022.
If so, that could prompt the Fed to cut interest rates sooner than expected.
Markets currently expect the first rate cut to come in September, followed by one in December. Citi, which is below consensus on its employment outlook and is the furthest removed from Wall Street consensus on rate cuts, expects the Fed to start cutting rates in July and continue with four cuts by the end of the year.
But Goldman Sachs sees seasonal adjustments limiting job growth, projecting payrolls to fall short of market expectations by 160,000, though it does expect an extra week of payrolls this month to offset some of the seasonal distortions.
On wages, Goldman Sachs is roughly in consensus, keeping wage increases at a level that Fed officials say is inconsistent with the 2% inflation target.
The BLS is scheduled to release its report at 8:30 a.m. ET.
