Tonight’s Nonfarm Payrolls May Face a “Cliff-like Reversal”! Can Market Expectations for a Fed Rate Cut This Year Be Reignited?

Source: JIN10 Data

The May non-farm payroll data to be released tonight is pushing major investment banks into a fierce battleground: Goldman Sachs predicts an increase of 60,000, Ernst & Young forecasts a rise of 50,000, while Vanguard projects only 20,000...

At 8:30 PM on June 5 (GMT+8), the US Bureau of Labor Statistics will release the non-farm employment data for May. This report is seen as a key indicator to gauge the strength of US employment growth since the beginning of the year. Employment performance has remained robust in recent months, but many signs suggest this momentum may be weakening.

The market generally expects the number of new jobs added in May to be about 85,000, significantly lower than the average of around 150,000 added in the previous two months (including 115,000 in April). The unemployment rate is expected to remain unchanged at 4.3%.

Laura Ullrich, Director of Economic Research at Indeed Hiring Lab, pointed out that the job market is exhibiting a “low hire, low fire” state. She stated: “We keep hearing and seeing a ‘low hiring, low firing’ sentiment, meaning if you have a job right now, you’re in a decent position.”

She further explained that employees are inclined to stay in their current roles, a trend of “holding tight to their jobs” continues, but job seekers are facing difficulties because company hiring needs are clearly inadequate. “If you’re looking for a job, it’s going to be a very tough time because the demand for hiring is very low.” She also added that if May’s data falls below or equals market expectations, “it wouldn’t be surprising.”

Expected Data Recalibration

According to previous data released by the US Bureau of Labor Statistics, the number of job openings unexpectedly rose in April, but resignations dropped to the lowest level since August 2020. Ullrich judged: “From a macro perspective, we are going to see stagnation because if people aren’t quitting and companies aren’t creating new roles, it’s essentially just a fairly stagnant market.”

Another reason for the market’s cautious sentiment is that the previous strong employment performance might have been supported by seasonal factors. Economists point out that except for February (when employment fell by 156,000, the only negative growth this year), other months’ gains were partly due to mild weather and other short-term factors.

Meanwhile, layoffs are on the rise. Data from Challenger, Gray & Christmas shows that 97,006 planned layoffs took place in May, a 16% increase from April, marking the highest level for the same period since 2020.

The organization also noted that the number of layoffs related to artificial intelligence reached 38,242, setting a single-month record since tracking began about three years ago.

The pressures in the labor market are reflected in other indicators as well. According to the US Department of Labor, initial jobless claims rose by 13,000 to 225,000 for the week ending May 30, the highest weekly level since early February.

In addition, the Federal Reserve’s Beige Book for May reported that employment conditions “changed very little” in 11 of the 12 districts. The report states that most regions are facing low levels of both hiring and layoffs, and in the face of an uncertain economic outlook, workers are less willing to job-hop, while companies are focusing their hiring on critical positions or replacements.

Conflicting Forecasts and Policy Implications

Several institutions have offered more conservative forecasts for May employment growth. Goldman Sachs expects an increase of only 60,000 jobs and notes that high-frequency employment indicators it tracks have weakened.

Vanguard’s chief economist Adam Schickling expects only a 20,000 increase, believing that the unusually warm and dry weather at the beginning of the year boosted the data from January to April, and this effect will be partially reversed in May.

Ernst & Young expects an increase of 50,000 jobs, believing this level is roughly sufficient to maintain the current unemployment rate, but there is a slight upward pressure. Chief economist Gregory Daco said: “This slowdown reflects a recalibration of earlier strong data driven by weather factors and also illustrates a still cautious hiring backdrop.” He expects the unemployment rate could rise to 4.4%, in line with the cooling trend in both labor supply and demand.

From a monetary policy perspective, as long as the data generally meets current expectations, the Federal Reserve will likely continue its wait-and-see stance. The market widely believes that the probability of the Federal Open Market Committee adjusting rates in the June 16–17 meeting is close to zero, and this cautious attitude may last throughout the year. If inflation remains high, the possibility of a rate hike even in early 2027 cannot be ruled out. Daco commented:

“For the Federal Reserve, the stability of the labor market combined with persistently high inflation increases the likelihood of a more hawkish, two-way policy statement at the next FOMC meeting. Policymakers may stress that if inflation proves more persistent, rate hikes will remain on the table as an option.”