May jobs report released on Friday: What you should expect

The U.S. economy is expected to have created 185,000 jobs in May, a relatively solid but unremarkable number as economists look for signs of softening global growth after private-sector job growth dropped to a nine-year low last month.

The Department of Labor will release its monthly payroll and unemployment data early Friday morning, offering investors a glimpse into the overall health of the U.S. economy and labor market.

Economists surveyed by Refinitiv forecast the unemployment rate will remain steady at 3.6 percent – the lowest level since December 1969. Investors, however, will be watching wage growth for signs of inflation, which has remained relatively flat and well-below the Federal Reserve’s preferred target of 2 percent.

Average hourly earnings are expected to grow 3.2 percent compared to last year, matching April’s increase, but narrowly missing February’s growth of 3.4 percent -- the highest in nearly a decade. Stronger gains reflect a tightening labor market and a shrinking pool of workers, which makes it more difficult for employers to find qualified workers, and therefore encourages them to raise wages.

But if the job growth number comes in lower than expected, anticipate renewed calls for the Federal Reserve to cut the benchmark federal funds rate from the current range of 2.25 percent to 2.5 percent.

"Today’s Fed speak hinted at a rate cut this year amid trade tensions. A weaker-than-expected jobs report would increase those odds," said Dan North, the chief economist at Euler Hermes North America.

Already, Fed Chair Jerome Powell hinted that policymakers at the U.S. central bank are prepared to cut rates to sustain the near-record expansion as they monitor how global trade developments are impacting the U.S. economic outlook. Traders are also increasingly betting on at least one rate cut by July, and possibly two by the FOMC’s January meeting.

"We do not know how or when these issues will be resolved. We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion, with a strong labor market and inflation near our symmetric 2 percent objective," Powell said in a speech on Tuesday.

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Last month, U.S. private sector hiring stalled to a near stop, with employers hiring just 27,000 people, according to the ADP National Employment Report. That was far below analyst expectations of 180,000.

In April, job growth surged, with the U.S. economy adding a staggering 263,000 jobs, far surpassing expectations. It marked the 119th straight month of gains.