U.S. labor market growth seen slowing ahead of May payrolls report

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Ciaran Ryan

3 hours ago

U.S. labor market growth seen slowing ahead of May payrolls report — US hiring slows in May

After a firmer start to the year for hiring, economists now expect a much weaker reading in the May U.S. jobs report due Friday. Forecasts center on payroll growth of about 80,000 and an unemployment rate of 4.3%, pointing to a labor market that remains stable for workers who have jobs but difficult for those seeking new roles.

Highlights

Wall Street expects May payroll gains to slow sharply, with Goldman Sachs forecasting 60,000 and Vanguard predicting just 20,000 new jobs.
Planned layoffs reached 97,006 in May, up 16% from April, with AI-related cuts totaling 38,242, the highest monthly figure on record.
A May payroll report near consensus would likely keep Federal Reserve policy unchanged at its June 16-17 meeting, sustaining a hawkish stance amid persistent inflation.

Payroll forecasts signal softer hiring momentum

As reported by CNBC, Wall Street economists are bracing for a notable slowdown in May job creation after average gains of 150,000 over the prior two months. Some analysts say earlier payroll strength was helped by mild weather and seasonal effects, leaving room for a weaker headline number in the latest report.

Laura Ullrich, director of economic research at Indeed Hiring Lab, says the labor market is still defined by low hiring and low firing. She says workers are holding onto existing jobs, while job seekers are facing a much tougher environment because hiring activity remains subdued.

Other data are reinforcing that cautious view. Bureau of Labor Statistics figures released earlier this week show an unexpected rise in April job openings, but the number of people quitting jobs is at its lowest level since August 2020, suggesting limited worker confidence in finding new employment.

Goldman Sachs expects payroll gains of 60,000, while Vanguard chief economist Adam Schickling is forecasting just 20,000 as earlier weather-related strength partially unwinds. EY-Parthenon expects a 50,000 increase, and chief economist Gregory Daco says that would still likely leave the unemployment rate little changed, though he sees it edging up to 4.4%.

Layoff trends and Fed policy remain in focus

Signs of stress are also appearing in announced job cuts and unemployment claims. Challenger, Gray & Christmas says planned layoffs total 97,006 in May, up 16% from April and the highest for that month since 2020, while artificial intelligence-related job cuts reach 38,242, the largest monthly total since the firm began tracking that category about three years ago.

Initial jobless claims last week also post their highest reading since early February, adding to evidence that labor demand is cooling. Even so, economists broadly say payroll growth near consensus would still be consistent with a labor market that is slowing rather than collapsing.

For monetary policy, a report near expectations is likely to keep the Federal Reserve unchanged at its June 16-17 meeting. Markets are pricing in almost no chance of a move then, and Daco says a steady labor market combined with still-elevated inflation increases the likelihood that Fed officials keep a hawkish tone and leave open the possibility of rate hikes if price pressures persist.

Our earlier report on the rise in long-term unemployment in the U.S. noted that more jobless workers are staying out of work for 27 weeks or longer, a sign employers are absorbing available workers less easily even when headline payrolls look resilient. We also highlighted the longer-lasting damage from prolonged joblessness—lower future earnings and added pressure on household finances that can ultimately weigh on consumer spending and broader economic momentum.

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