NFP: A good report may put a brighter spotlight on Fed’s tapering talk – Wells Fargo

On Friday, the US employment report will be released. Market consensus is for an increase in payrolls of 650K. According to analysts at Wells Fargo, a weak report could entrench expectations of the Federal Reserve tapering its QE. 

Key Quotes: 

“Fully reopening the economy after a pandemic is not a seamless process and this was on full display in the April jobs report. Strong demand for labor as firms reopen and restaff collided with a number of constraints on the supply of workers. Still, the April payroll figure was in stark contrast with other data on the labor market. PMI indices on employment, consumers' views of the job market and declining jobless claims all suggest the economy should be adding jobs at a robust pace.”

“While we don't suspect all the labor supply issues worked themselves out in May, we believe the jobs' recovery got back on track. We forecast employers added 800K jobs during the month and the unemployment rate ticked down to 5.9%. We will also be paying extra close attention to any revisions to prior month's data in next week's release.”

“If employers added significantly fewer jobs than we forecast, it would seem the disconnect between the demand for and supply of labor needs a little more time to work out. A weak report could entrench expectations that tapering doesn't start until early 2022, despite the recent rise in inflation. Alternatively, big upward revisions to prior data or a solid gain in May employment, particularly if accompanied by a meaningful upward revision to April, may put a brighter spotlight on when the Fed may discuss and ultimately kick off tapering.”