Investors are keeping a close eye on the upcoming May jobs report, due next Friday, June 7. Will the stock market crash?
Well, maybe.
With the second half of the year just weeks away, with no rate cuts to show for it, Wall Street has become both anxious and hopeful for change. As a result, investors are closely watching each and every economic data release for evidence that the Federal Reserve will opt to lower interest rates this year. This, of course, includes the May jobs report.
There has been some evidence of softening in the labor market in recent months. The U.S. economy added just 175,000 jobs in April, less than forecasts of 235,000 added jobs and nearly half the 315,000 new jobs recorded in March. This put the unemployment rate at 3.9%, above projections of a 3.8% jobless rate.
That said, investors actually viewed the data somewhat positively. The softer April jobs reading hinted at the possibility that restrictive lending rates may actually be working to lower inflation, which tends to operate inversely with employment.
Considering the promising April consumer price index (CPI) print, investors now expect the first rate cut to come in September, sooner than previous estimates of a December rate cut.
What Does the April Jobs Report Mean for a Potential Stock Market Crash?
Initial jobless claims rose by 3,000 to 219,000 in the week ended May 25, the highest four-week average of claims since September. At a glance, this may suggest that the May jobs report will also show a slowdown in the labor market.
“We think it is likely that the underlying pace of layoffs is starting to rise,” said Ian Shepherdson, head of Pantheon Macroeconomics.
While this points to further softening in the labor market, many economists agree it’s far from being at any point of concern.
“Despite the week-on-week increase, the level remains in a range that suggests the labor market remains tight. Continuing claims are still very low by any historical standard, and we still see the data as supporting the notion that people who lose a job are able to find a new one with relative ease,” noted Thomas Simons, an economist at Jefferies.
As usual this year, economists will likely be hoping for a “goldilocks” reading. That is, jobs numbers that are cool enough to suggest the central bank will opt to cut rates, but not so cold as to stoke recession fears.
While it’s too early for May unemployment projections, the results of the report will likely serve to confirm or deny current rate-hike expectations.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
