Emily McCormick · Reporter Mon, 31 May 2021, 5:31 pm
Once investors return from the long holiday weekend in the U.S., all eyes will be on the May jobs report, which will offer a look at the latest progress made in the labor market’s recovery and serve as a closely watched signal for the Federal Reserve’s forthcoming monetary policy decisions.
Economists have moderated their expectations for payroll gains following April’s sharply disappointing monthly jobs report. In that print, the Department of Labor said U.S. employers added back just 266,000 non-farm payrolls during the month, coming in well below estimates for 1 million job additions. The unemployment rate also unexpectedly increased to 6.1%.
Still, the May jobs report will likely show more improvement in the labor market picture. Payrolls are expected to rise by 678,000, according to Bloomberg consensus data, which would mark the biggest increase since March and a fifth consecutive monthly gain. And the unemployment rate is expected to fall to 5.9%, trending to the lowest level since the start of the pandemic more than a year ago in the U.S.
By pre-pandemic standards, the April payrolls gain would have marked an impressive surge in hiring, given that payroll gains were averaging just 168,000 per month in 2019. However, after the pandemic wiped out more than 22 million jobs in the U.S., the economy has been left to make up significant employment losses from the past year alone. Heading into this Friday’s monthly jobs report, the economy is still about 8.2 million jobs short of pre-pandemic levels.
“The pandemic resulted in just over 22 million jobs lost in the U.S. economy, and over the last year about 14 million jobs have come back, which means there is quite a bit of slack left in the labor market,” Charlie Ripley, senior investment strategist for Allianz Investment Management, said in a note Friday. “With lockdown restrictions easing and consumer spending picking up, many market participants have expected outsized job gains in the economy. However, the big miss on the April employment report is a blunt reminder that it may take longer than expected for the labor market to fully recover.”
“With the number of job openings increasing to the highest level on record, participants are blaming things like supplemental unemployment benefits as the culprit restricting job growth,” he added.
Indeed, with business reopenings taking place at an accelerating clip, one of the biggest concerns for the economy has been around addressing labor shortages. Lingering worries over contracting COVID-19, issues over finding childcare and ongoing enhanced pandemic-era unemployed benefits have all been cited as factors keeping many workers on the sidelines of the labor force, even as businesses scramble for workers. Job openings raced to a record high of more than 8.1 million in March, the Bureau of Labor Statistics said in its most recent monthly report.
Over the past several weeks, nearly two dozen states announced they would be slashing the federal $300 per week in unemployment benefits as soon as in mid-June, even as the federal expiration date for these benefits is set for Sept. 6. Many of the state governors opting for this plan suggested this might encourage individuals to return to work, while other pundits have said the augmented unemployment benefits provide a necessary economic safety net for those hardest-hit by the pandemic.
“Our view has been and remains that the latest payroll report suffered far more from technical issues than it did from people making a decision to avoid finding a job because of generous unemployment insurance benefits,” economists from RBC Capital Markets wrote in a note Friday. “Make no mistake, as we have said many times over the months, we believe that is in fact creating an issue, but we do not believe it was why the consensus missed by nearly 1 million jobs last month.”
This Friday’s payrolls report will also serve as a closely watched metric for investors in suggesting whether labor market conditions have improved substantially enough to warrant a near-term move by the Federal Reserve. The central bank has signaled it is looking for “substantial further progress” toward its goals of maximum employment and price stability before considering a rollback of crisis-era quantitative easing or a hiking of benchmark interest rates.
The sharply disappointing April employment report appeared to affirm that the Fed could comfortably remain on hold with its current highly accommodative monetary policies. A significant improvement in the labor market picture, however, could weaken that stance.
“This is a critical data point for the Fed in deciding the path of monetary policy, especially given the surge in inflation and inflation expectations,” Bank of America economist Michelle Meyer wrote in a note on Friday. “Another weak jobs report could delay the Fed’s discussion around asset purchases but a strong rebound could give the Fed more confidence in the recovery and the ability to start guiding markets towards a taper in asset purchases.”
While the vast majority of major public companies have already reported first-quarter earnings results, a handful of closely watched companies including Zoom Video Communications (ZM) are poised to post results.
Zoom’s earnings, due for release after market close on Tuesday, will serve as a signal of the resilience of work-from-home company fundamentals as more individuals start to return to the office and to other in-person activities.
Wall Street has been bracing for a growth slowdown this year in Zoom’s sales and new users. Recent results from peer stay-from-home beneficiary Netflix (NFLX) have been emblematic of this phenomenon, with new subscribers slowing sharply in the first quarter and missing consensus expectations.
Last quarter, however, Zoom easily exceeded consensus estimates and offered an upbeat full-year outlook, helping assuage Wall Street’s concerns that the video conferencing’s business might be sharply weakened by a broader economic reopening later this year. And new product innovations outside of Zoom’s core video conferencing business have helped drive additional customer engagement, with its two-year-old Zoom Phone cloud-based platform reaching 1 million seats at the beginning of this year.
“While our checks were admittedly more up-market, they suggested that customer churn may prove to be lower-than-expected,” UBS analyst Karl Keirstead wrote in a note published May 26. “The post-pandemic end state appears to be work-from-anywhere (virtually from home or in the office) which should help support continued spending on collaboration software for years to come.”
For the three months ended in April, Zoom is expected to grow revenue 177% year-on-year to $909.9 million. While this would be faster than the 169% growth rate from the same three months in 2020, it would be markedly slower than the 369% rate Zoom saw in its fiscal fourth quarter.
Customers with more than 10 employees — a closely watched metric gauging Zoom’s ability to attract and retain highly lucrative customers — are expected to have grown by 19,900 over last quarter to reach 486,400. This would also mark an increase of about 86% over last year, which while still impressive, would be a deceleration from the triple-digital growth rates Zoom posted over the course of 2020.
Shares of Zoom have fallen 1.9% for the year-to-date. The stock has underperformed against both the S&P 500 and small-cap Russell 2000, which have risen 12.1% and 11.6%, respectively, so far in 2021.