We expect non-farm payrolls of 220,000 in May, which is almost in line with the April reading. It is especially the job creation in the service sector that drives our forecast up, while manufacturing payrolls contribute to the downside.
Even though US economic data have generally been mixed, jobless claims data have trended lower in recent weeks and at current levels call for some upside to the non-farm payrolls.
After a decline in unemployment to 5.4% in April we look for unchanged unemployment this month. However, looking further ahead a pace around 200,000 in monthly job growth in coming months should push the unemployment rate towards the Fed's longer-term estimate and the current Fed NAIRU estimate of 5.2% could be reached already in Q3 this year.
Other indicators for the labour market still suggest some slack, especially marginally attached workers and people working part-time for economic reasons, which are far from post recession levels. This indicates that there is still room for improvement in some aspects of the labour market.
Furthermore, the average hourly earnings estimate will be released, which will give an indication of the wage growth in May. The quarterly employment cost index has shown improvement in recent quarters and with the unemployment rate closing in on the NAIRU, we expect wage inflation to pick up in H2 and this should also start to show up in average hourly earnings.
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