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May’s employment data is released at 8:30.  Consensus is expecting a 4.9% unemployment rate, a 200k and 195k increase in non-farm and private sector payrolls, respectively, a 0.3% increase in average hourly earnings, a 34.5 hour workweek and a 63.0% labor participation rate.

To write the incredibly obvious, the markets will trade off this data, forming broad based conclusions, conclusions that will be tainted by one’s confirmation biases and preconceived notions.

As noted many times, a sudden collapse in hiring seems unlikely as jobless claims have been below 300,000—considered consistent with a healthy labor market—for the longest stretch since 1973.  However, what is different this time is the labor participation rate (LPR).

The LPR has risen for six consecutive months—the longest stretch since 1992—and is at the highest level since March 2014.  This is indicating a stronger labor market as improving jobs prospects are pulling discouraged people into the workforce but the LPR is considerably lower than the 67% level regarded as “healthy.”

There are low expectations of an “upside” surprise given the ADP survey, however as noted many times the correlation between ADP and BLS is widening each month.

Yesterday markets were quiet waiting for today’s data.

Last night the foreign markets were down.  London was down 0.99%, Paris down 1.36% and Frankfurt down 0.77%.  China was down 2.82%, Japan down 0.25%, and Hang Sang down 1.66%.

The Dow should open nominally lower but this could change radically given the significance of the labor report released at 8:30.   The 10-year is unchanged at 1.75%.

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Ken Engelke

Chief Economic Strategist Managing Director

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