Weak hiring indicators point to softer May payrolls, Pantheon says

[Payroll Management and Salary Processing System. Businesswoman calculates payroll, with icons representing employee salaries management, payment scheduling, efficient payroll, financial documentation,]
Sandwish

U.S. payroll growth likely slowed sharply in May, with the labor market increasingly vulnerable to a downside surprise after two straight stronger-than-expected employment reports, according to Pantheon Macroeconomics.

The May nonfarm payrolls report, due Friday, June 5, is expected to show a 95K increase in jobs and an unemployment rate holding at 4.3%, according to market consensus. Pantheon forecasted a weaker 50K payroll gain alongside a rise in the unemployment rate to 4.4%.

The firm said several leading labor-market indicators weakened lately, including hiring intentions in the NFIB Small Business Survey and online job-posting measures from Indeed and LinkUp. Pantheon also pointed to weakness in the Census Bureau’s Business Trends and Outlook Survey.

Pantheon argued April payrolls were artificially boosted by unusually warm weather, which pulled forward seasonal hiring in construction and garden-equipment retailing. The firm expects that effect to reverse in May as temperatures normalize.

The report also highlighted a historical tendency for payrolls to disappoint after two consecutive upside surprises. Since 1998, payrolls have beaten consensus estimates for a third straight month only 15 times out of 48 instances following back-to-back upside surprises, according to Pantheon.

Additional drags could come from layoffs tied to Spirit Airlines’ collapse and an increase in strike activity during the survey period, the firm said.

Pantheon nevertheless noted its quantitative payroll model still pointed to a roughly 95K gain in May employment, though the firm said weakening forward-looking indicators suggested the final result would likely undershoot that estimate.

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