Does US labour market slow gains?

The US nonfarm payroll report is due out on Friday, likely supporting vigorous monetary policy tightening. The dollar is expected to win against significant rivals for a fifth consecutive week. The Fed raised interest rates by 50 basis points midweek, putting it at the forefront of hawkish global central banks.

As benchmark US Treasury yields jumped to 3.1% overnight, the greenback was up for a ninth week against the yen. 

Fed officials are worried that raising rates too high will choke off economic growth. Even though the first quarter GDP contracted because of a record trade deficit, there was a rising consumer spending trend and increased business investment in equipment.

US jobs data 

In fact, tight labour market conditions continue to fuel inflation well into the second quarter. This is evidenced by the Labor Department's job openings survey, which shows workers quitting their jobs at their fastest rate ever. 

Inflationary forces are now overshadowing the economy, as both productivity and unit labour costs were considerably worse than expected. In the first quarter, nominal wages grew over 5%, contributing to the rise in unit labour costs.

Labor Department data shows that nonfarm productivity declined 7.5%, the most significant quarterly drop since World War II, while unit labour costs increased 11.6%, the largest increase since summer 2020. 

This week, other labour market reports also indicated slower job gains for April, indicating that worker shortages are growing. The Labor Department reported initial jobless claims hit 200,000 for the first time in nearly two months last week. Challenger, Gray & Christmas reported that job loss has been at its highest since June last year. It was the second straight increase in job cuts this month and the first rise in job cuts annually this year.

Events of today

On Friday, the Labor Department releases its official monthly report. The economy is expected to have created 391,000 jobs in April, slightly less than March's 431,000. The payroll number of around 550,000 will be strong enough to keep the economy going but not strong enough to pull tapering fears forward. Hence, this weakness could undermine Thursday's gains in the dollar.