NFP Preview: Is the AI “Jobpocalypse” at Hand?

>NFP Key Points

• NFP report expectations: +85K jobs, +0.3% m/m earnings, unemployment at 4.3%.
• NFP leading indicators point to a potentially above-expected reading in this month’s jobs report, with headline job growth coming in somewhere in the 120-160K range.
• The low volatility we’ve seen in recent weeks in the US Dollar Index (DXY) is unlikely to extend much longer.

When is the May NFP Report?

The May NFP report will be released on Friday, June 5, at 8:30 ET.

NFP Report Expectations

Traders and economists expect the NFP report to show that the US created 85K net new jobs, with average hourly earnings rising 0.3% m/m (3.4% y/y) and the U3 unemployment rate at 4.3%.

NFP Overview

Are we starting to see signs of the AI “Jobpocalypse”?

If we are, they’re extremely small so far.

High-profile layoffs at the likes of Meta (8K jobs), Cisco (4K jobs), and IBM (7.8K jobs) were attributed to AI efficiencies in recent months. These concerns have been compounded by the last few monthly reports from Challenger, Gray & Christmas. AI represented the leading cited reason for job cuts in each of the last three months, with 21.5K AI-related cuts in April and over 38K layoffs in this morning’s report (40%).

Despite these anecdotes, a broader slowdown remains elusive in macroeconomic data, with better-than-expected NFP reports in each of the last two months. By that measure, the US labor market has remained relatively resilient, adding an average of about 80K jobs per month so far this year, enough to keep the unemployment rate unchanged at the historically low level of 4.3%. Now the jobs market faces its latest test, the May NFP report, with traders expecting an extension of the “low hire, low fire” regime that has characterized the past year or so:

Source: StoneX

As the graphic above shows, traders are essentially anticipating another steady jobs report, with modest job growth, stable unemployment, and continued gradual wage increases.

Combined with accelerating inflation above the Federal Reserve’s 2% target amidst the ongoing closure of the Strait of Hormuz, traders are starting to price in the potential for an interest rate hike from the Federal Reserve this year, with the CME’s FedWatch tool showing about a 50% probability of at least one rate increase by December, despite the ostensibly-dovish Kevin Warsh taking over as the leader of the institution:

Source: CME FedWatch

NFP Forecast

As regular readers know, we focus on four historically reliable leading indicators to help handicap each NFP report:

• The ISM Manufacturing Employment subindex rose to 48.6 from 46.4 last month.
• The ISM Services Employment subindex held steady at 47.9 vs. 48.0 last month.
• The ADP Employment report came in at 122K jobs, up from last month’s 109K reading.
• The 4-week moving average of initial unemployment claims rose to 215K, up from 203K last month.

Weighing the data and our internal models, the leading indicators point to a potentially above-expected reading in this month’s jobs report, with headline job growth coming in somewhere in the 120-160K range, albeit with a big band of uncertainty given the limited response rates.

Regardless, the month-to-month fluctuations in this report are notoriously difficult to predict, so we wouldn’t put too much stock into any forecasts (including ours). As always, the other aspects of the release, including the closely watched average hourly earnings figure and unemployment rate will also impact how markets react to the release.

Potential NFP Market Reaction

	Wages < 0.2% m/m	Wages 0.2-0.4% m/m	Wages > 0.4% m/m
< 20K jobs	Slightly Bearish USD	Slightly Bearish USD	Neutral USD
20-110K jobs	Neutral USD	Neutral USD	Slightly Bullish USD
> 110K jobs	Neutral USD	Slightly Bullish USD	Bullish USD

Technically speaking, the US dollar is trading near the top of its 2-month range against its major rivals, with the ongoing conflict in Iran as the primary driver. Further de-escalation could weigh on the greenback regardless of what this month’s jobs report shows.

US Dollar Index Technical Analysis – DXY Daily Chart

Source: TradingView, StoneX

As the chart above shows, the US Dollar Index (DXY) has spent the last couple weeks consolidating within a tight range, which is itself within a broader 3-month consolidation zone. The long period of low volatility reflects geopolitical uncertainty amidst the ongoing fragile ceasefire in the Middle East and mixed economic data, potentially setting the stage for a more volatile breakout in the coming days.

A bullish breakout above 99.50, driven by either a stronger-than-anticipated jobs report or re-escalation in Iran, would open the door for a continuation toward the Dollar Index’s 1-year high near 100.50 next, whereas a bearish breakdown could set the stage for a continuation down to the 3-month low closer to 97.50. One way or another, the low volatility we’ve seen in recent weeks is unlikely to extend much longer.

-- Written by Matt Weller, Global Head of Research

Follow Matt on Twitter: @MWellerFX