Will NFP Report Reveal Continued Cooling Labour Market?

The eagerly awaited Employment Change Report for May, scheduled for release on Friday, June 7th, 2024 at 8:30 AM ET, is poised to provide crucial insights into the status of the US labour market. As economic indicators hint at a potential slowdown, investors are closely monitoring the data for signals that this trend is solidifying.

Market Expectations

Economists anticipate a continued moderation in job growth compared to the robust performance seen earlier in the labour market. The consensus forecast predicts the addition of 185,000 nonfarm jobs in May, following April’s figure of 175,000. The unemployment rate is expected to remain steady at 3.9%. Here’s a breakdown of the key metrics Wall Street will be scrutinizing:

Nonfarm Payrolls: +185,000 (vs. +175,000 prior)
Unemployment Rate: 3.9% (unchanged from the previous month)
Average Hourly Earnings (MoM): +0.3% (vs. +0.2% prior)
Average Hourly Earnings (YoY): +3.9% (unchanged from the previous month)
Average Weekly Hours Worked: 34.3 (unchanged from the previous month)
Investor Confidence and Potential Rate Cuts

The NFP report arrives against the backdrop of recently record highs in the stock market, driven by weaker-than-expected economic data. This has bolstered investor confidence in the possibility of the Fed implementing interest rate cuts as early as September. Currently, markets are pricing in a 67% chance of a September rate cut, up from around 50% just one week ago.

Labour Market Normalization or Broader Slowdown?

One critical question looms over the NFP report: Is the slowdown in job growth indicative of a normalization in the labour market or the initial signs of a broader economic downturn? Economists currently lean toward the former proposition.

Resilient Labour Market

Analysts expect the May jobs data to reflect a healthy, albeit more balanced, labour market. The rapid hiring surge observed earlier is likely stabilizing. The Fed’s monetary policy adjustments for the year will hinge on its assessment of inflation.

Recent economic data suggests resilience in the labour market, although it shows signs of returning to pre-pandemic levels. The latest Job Openings and Labour Turnover Survey (JOLTS) revealed a decrease in job openings in April, reaching their lowest point since February 2021. Notably, the ratio of job openings to unemployed individuals returned to 1.2 in May, aligning with pre-pandemic levels.

Wage Growth Under Scrutiny

Wage-linked data will be closely monitored in the May NFP report. Persistent high wage growth could contribute to ongoing inflation. In April, year-over-year wage growth dipped below 4% for the first time in nearly three years. Economists project a slight uptick in wage growth on a monthly basis for May, at 0.3% compared to April’s 0.2% increase. Year-over-year wage growth is expected to remain unchanged at 3.9%.

In summary, the May NFP report holds valuable insights into the health of the US labour market. A continued slowdown in job growth, coupled with moderating wage gains, could signal a normalization following the robust hiring spree witnessed earlier. The Fed will closely analyze the data to determine potential adjustments to its monetary policy, particularly regarding interest rates.

Could NFP data affect the performance of the US Dollar Index and gold prices? This is one more crucial question, and the answer is: Yes, the NFP data for May 2024 could affect inflation, the US Dollar, and gold prices in June 2024. Here’s how, based on the recent news and data:

Impact on Inflation

A strong NFP report (higher than expected job growth) could indicate a growing economy. This can lead to higher demand for goods and services, potentially putting upward pressure on inflation. Conversely, a weak NFP report (lower than expected job growth) could signal a slowdown in the economy. This might lead to lower demand and potentially reduce inflationary pressures.

US Dollar’s Performance

A strong NFP report could boost confidence in the US economy, potentially strengthening the US dollar (DXY) against other currencies. This is because investors might be drawn to assets denominated in USD if they perceive the US economy to be healthy. A weak NFP report could weaken the US dollar as it might raise concerns about the US economy’s health.

Impact on Gold Prices

Generally, a strong US dollar (due to a strong NFP report) can put downward pressure on gold prices. This is because gold is often seen as an alternative investment to the US dollar, and when the dollar strengthens, investors might be less inclined to buy gold.

Conversely, a weak US dollar (due to a weak NFP report) could lead to higher gold prices. This is because gold can be seen as a hedge against inflation, and if the NFP report raises inflation concerns, investors might turn to gold as a safe haven asset.

Other Key Factors to Consider

The actual NFP data released on June 7th, 2024 will be the key determinant of its impact. A report close to expectations might have a muted effect compared to a significant positive or negative surprise. The Fed’s response to the NFP data can also influence the market. If the Fed seems unfazed by a strong report, the impact on inflation and the dollar might be lessened.

Overall, the NFP data is a significant economic indicator that can influence financial markets, including inflation, the US dollar, and gold prices. However, the specific direction and magnitude of the impact depend on the details of the report and other economic factors.