The domestic American labor market has stabilized over the past few months and may be mildly accelerating.
We are forecasting that the jobs report for May will show an increase of 95,000 new positions with risk of a quicker pace when the data is released on Friday.
In addition, we expect the unemployment rate to remain at 4.3%, which may drift down to 4.2% on the back of what would be a three-month average of 131,666 new jobs should our forecast prove prescient.
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While economists and investors will be satisfied with any job gains above the 25,000 new positions that we think are necessary to keep labor conditions stable, weak average wage gains amid rising inflation are sure to take the bloom off the rose of any solid monthly increase in hiring.
Recent ADP data on private payrolls has been strong, and we anticipate an increase in higher-paying jobs in goods production, manufacturing and construction as seasonal issues come into play and as demand associated with AI kicks in.
In addition, education hiring has been rising, which we think presents an upside risk to our forecast of monthly job creation.
We do anticipate, however, that the pace of hiring in transport and trade as well as retail trade will slow in May.
Perhaps more important, with respect to household consumption, we are expecting only a 0.2% increase in monthly average hourly earnings which would translate to a 3.4% yearly increase.
When inflation is factored in for the month of May, which we think increases at a 4.2% year ago pace—we think it peaks at 4.5% or above this summer—real wages will decline by 0.8% at a minimum on the back of three consecutive monthly declines in disposable income.
