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Greater Focus On The U/E Rate In Friday's Payrolls Release

US OUTLOOK/OPINION
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  • Payrolls growth figures are always going to have a large say on market reaction. However, growing questions over their strength following latest QCEW data and the ongoing divergence with the household survey, the unemployment rate is likely to be looked at even more closely as a metric for broader labor market imbalances. That’s especially true with immigration significantly lifting the breakeven pace of jobs growth.
  • In May, the unemployment rate surprised a tenth higher than expected at a rounded 4.0% for its highest since Jan 2022. The level was exaggerated by rounding, although at 3.96% it was a genuine tenth increase from the 3.86% in April. Consensus for June looks for another 4.0% print although there is unsurprisingly some skew to a 3.9% reading, whilst RBC has the sole primary dealer estimate with an increase to 4.1%.
  • The median FOMC participant at the June meeting left their 4Q24 forecast unchanged at 4.0%, resisting the urge to lift it back a tenth to the 4.1% penciled in at the Dec’23 SEP. They did however lift the 4Q25 forecast a tenth to 4.2%, although there was a wide confidence band around that median with the low range of central tendency figures expecting a resumed decline in the unemployment rate to 3.9%.
  • Sahm Rule calculations have come in and out of focus so far this year. For what it’s worth, a 4.00% reading would see the rule lift from 0.35 to 0.38pps, still not yet triggering the 0.5pp increase in the three-month rate historically indicative of recession.
  • We would lean to risk of a downside (hawkish) surprise from the unemployment rate if simply due to the volatility of the household survey which means we could be due a bounce in household employment after the particularly heavy -408k in May. It’s also supported by the May increase in prime-age participation to new highs since 2001, which might struggle to increase further and could give back some of the increase in June. However, some alternate indicators paint a softer re-hiring picture, be it the trend increase in continuing claims or historically low hiring announcements in the Challenger survey, which could a) limit the extent of the downside surprise on an unrounded basis and b) leave an upward trend.

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  • Payrolls growth figures are always going to have a large say on market reaction. However, growing questions over their strength following latest QCEW data and the ongoing divergence with the household survey, the unemployment rate is likely to be looked at even more closely as a metric for broader labor market imbalances. That’s especially true with immigration significantly lifting the breakeven pace of jobs growth.
  • In May, the unemployment rate surprised a tenth higher than expected at a rounded 4.0% for its highest since Jan 2022. The level was exaggerated by rounding, although at 3.96% it was a genuine tenth increase from the 3.86% in April. Consensus for June looks for another 4.0% print although there is unsurprisingly some skew to a 3.9% reading, whilst RBC has the sole primary dealer estimate with an increase to 4.1%.
  • The median FOMC participant at the June meeting left their 4Q24 forecast unchanged at 4.0%, resisting the urge to lift it back a tenth to the 4.1% penciled in at the Dec’23 SEP. They did however lift the 4Q25 forecast a tenth to 4.2%, although there was a wide confidence band around that median with the low range of central tendency figures expecting a resumed decline in the unemployment rate to 3.9%.
  • Sahm Rule calculations have come in and out of focus so far this year. For what it’s worth, a 4.00% reading would see the rule lift from 0.35 to 0.38pps, still not yet triggering the 0.5pp increase in the three-month rate historically indicative of recession.
  • We would lean to risk of a downside (hawkish) surprise from the unemployment rate if simply due to the volatility of the household survey which means we could be due a bounce in household employment after the particularly heavy -408k in May. It’s also supported by the May increase in prime-age participation to new highs since 2001, which might struggle to increase further and could give back some of the increase in June. However, some alternate indicators paint a softer re-hiring picture, be it the trend increase in continuing claims or historically low hiring announcements in the Challenger survey, which could a) limit the extent of the downside surprise on an unrounded basis and b) leave an upward trend.