By Darya Korsunskaya and Alexander Marrow

(Reuters) -Russia recorded a marginal budget surplus in May, enabling it to slightly reduce its deficit for the first five months of the year to 3.41 trillion roubles ($41.9 billion), the finance ministry said on Tuesday, as monthly spending slowed.

In January-May 2022 Russia posted a surplus of 1.59 trillion roubles, but outlays to support its military campaign in Ukraine and Western sanctions on its oil and gas exports have since depleted government coffers. This year's deficit is already 117% of the annual plan.

Soaring defence spending has kept Russia's industrial sector ticking along, driving forecasts for economic growth this year and helping Moscow to continue its military campaign in Ukraine.

The finance ministry stopped publishing individual monthly budget fulfilment data last year, but based on Tuesday's figures, Russia posted a surplus in May of 13 billion roubles.

That compares with a 1-trillion-rouble deficit in April. Monthly spending in May was its lowest this year, 1.1 trillion roubles lower than in April, but to meet this year's overall 29.1-trillion-rouble expenditure target, spending will have to fall further.

Meanwhile, non-oil-and-gas revenues for January-May were 9.1% higher than the same period last year.

But Moscow's crucial oil and gas revenues were 49.6% lower year-on-year in the first five months, which the finance ministry put down to lower prices for Urals crude and lower natural gas export volumes.

Spending was 26.5% higher year-on-year in that period, the preliminary data showed, while income was down 18.5%.

Finance Minister Anton Siluanov has repeatedly said Russia's budget deficit this year would be no more than 2% of GDP, although most analysts disagree. The International Monetary Fund is among those expecting Russia to see a sharply wider budget deficit this year.

The finance ministry on Tuesday said it expects tax revenues from the oil sector to recover in the second half of the year.

The fall in revenues has forced Moscow to start selling international reserves to help cover the deficit, while analysts have suggested raising taxes is another option.

Russia has spent almost 440 billion roubles covering the deficit from the National Wealth Fund (NWF) so far this year.

($1 = 81.3705 roubles)

By Sarah Meyssonnier and Layli Foroudi

PARIS (Reuters) -French anti-pension reform protesters stormed the headquarters of the Paris 2024 Olympic Games on Tuesday as trade unions made a last-gasp attempt to pressure lawmakers into reversing President Emmanuel Macron's raising of the retirement age.

BFM TV broadcast images of several dozen hard-left CGT trade union militants briefly occupying the building in Aubervilliers in northern Paris.

"There was no violence and no damage," a Games spokesperson told Reuters.

The latest nationwide protests attracted far fewer people compared to the last demonstration on May 1.

The French government said a total of 281,000 people took to the streets across France on Tuesday, well below the figure of 782,000 for the prior protests on May 1.

Trade unions have fought Macron's move to make the French work longer since mid-January, with rolling strikes and protests that have at times descended into violence on the fringes.

However, the level of violence at the demonstrations has gradually abated, after major clashes broke out in March and April, although some minor vandalism occurred at the end of Tuesday's protest in Paris.

Macron says it was necessary to lift the legal retirement age by two years to 64 to plug a widening pension deficit. However, trade unions say the money can be found in other ways, such as raising taxes on the wealthy.

The new pension law is already on the statute books and after months of rare unity among the biggest trade unions, there are now divisions over where to focus energies.

Sophie Binet, the secretary-general of the CGT, said her union would fight on.

"There's a lot of anger but also fatigue," Binet said, adding that strikers had felt their wallets pinched.

'BALANCE OF POWER'

Between 400,000 and 600,000 people were expected to join the protests, authorities said, which would be down from more than a million who took part at the height of the pension protests earlier this year.

Some protesters have threatened to disrupt next summer's Olympics if Macron does not back down. Banners reading "No retirement, No Olympics" were visible in Paris.

Some 11,000 police were deployed, including 4,000 in Paris, on Tuesday. Fuel deliveries were blocked from leaving TotalEnergies' Donges site, near Nantes in western France where riot police clashed with black-clad protesters.

Disruption to rail travel was light. The civil aviation authority asked airlines to cancel a third of the flights out of Paris-Orly, the capital's number two airport, and a walkout by some air traffic control staff forced some overflight cancellations.

"Again today we've had to cancel some 400 flights ... because of French ATC strikes. The majority of these flights are overflights and not going to France," Ryanair CEO Michael O'Leary tweeted.

Macron and his government have been on a blitz in past weeks to shift the narrative. The French leader has unveiled electric vehicle battery investments, tax credits for green industry and middle-class tax cuts.

Lauren Berger, head of the reform-minded CFDT trade union, said the aim was now to turn anger into a "show of strength" in talks with the government on issues such as improving work conditions and purchasing power.

On Thursday, an opposition-sponsored motion aimed at cancelling the minimum pension age increase will be reviewed by the French parliament.

It is expected to be rejected by the lower house's speaker, a member of Macron's party, because under the constitution, lawmakers cannot pass legislation that weighs on public finances without measures to offset those costs.

But unions hope a big protest turnout could pressure lawmakers into holding a vote and set the stage for further challenges.

"We need to prepare for what's to come (after the summer)," said Jean-Luc Carbonari, a 60-year-old sewer works engineer. "We need to reverse the political balance of power."

By Chris Taylor

NEW YORK (Reuters) - Consumers facing high asset prices and rising interest rates have a few loan options. None are particularly attractive.

Buyers of homes or new cars might be better off waiting. But if you must go ahead, either face taking on a big monthly payment, or stretching out the loan term to keep the monthly bill down - as many are doing.

New car loans lasting 73-84 months (over six years) rose to 34.4% of the market in 2022 from 28.6% in 2018, according to auto information site Edmunds. A few borrowers are going even longer, with less than 1% of new car loans lasting 85 months or more.

"It's a reflection of the world we live in: Transportation affordability is a significant problem, as is housing," said Ira Rheingold, executive director of the National Association of Consumer Advocates.

"More and more dealers are offering extended loan terms: Instead of three or four or five years, they are now going way beyond that," Rheingold added. "It's the same thing with housing: Sometimes the only way to get someone into a house is to increase the mortgage length."

Ultra-long loan terms are showing up in the housing market.

Homeowners straining to pay their Federal Housing Administration (FHA) mortgages can now apply to have their loans extended to 40 years to reduce monthly payments.

For personal loans closed through the LendingTree platform, the median term in May rose to 60 months from 57 months in April, and 54 months in March.

Stretching out a loan is not always a bad idea. It can be a solid foundation for family wealth if fixed at a low rate for an asset that appreciates over time such as a 30-year mortgage.

One principle applies, no matter what the asset, Rheingold advised. "Be very wary of extending the life of your loan, just to make it affordable in the short-term."

Here are few tips from financial experts:

DO THE MATH

A lower monthly payment may seem attractive now, but a longer term loan will end up costing more in interest, likely at a higher rate to compensate the lender for additional risk. That is why such loans appeal to banks, but less to borrowers.

"Buyers should be very wary of taking lenders up on those offers," said financial planner Eric Scruggs of Stoneham, Massachusetts.

For example, a $35,000 car, with a five-year loan at 3% interest, would have a total of $37,734 in payments, he said. That same car financed over seven years at 5% would cost $41,554 – $3,820 more.

MAKE SOME HARD DECISIONS

If you must keep pushing out the loan term to afford an asset, that may be a signal to get real.

"If you have to stretch out to a seven-year loan to buy a car, perhaps you should buy a less expensive car," said Brandon Gibson, a Dallas financial planner.

BEWARE OF SLIDING ‘UNDERWATER’

Extending loans further into the future means increasing the amount of time you could be "underwater," or owe more than the asset is worth. That certainly happens with cars, but also with homes in eras of declining prices, as during the subprime mortgage crisis of 2007 to 2008.

"This situation triggers a host of issues," said Erin Witte, director of consumer protection for the Consumer Federation of America. "Being underwater can make it very difficult to trade in a car in future when you need a new one.

"Consumers are faced with the situation of 'negative equity,' where they still owe money on the car they want to trade in and end up rolling that debt into the finance contract on the new car," Witte added. "Unfortunately, that means the consumer is now paying interest on that debt twice."

By Joe Cash

BEIJING (Reuters) - China's imports are expected to have contracted in May, despite a low base last year as a lockdown in Shanghai brought the country's biggest port to a standstill, while exports likely fell for the first time in three months, a Reuters poll showed.

Inbound shipments to the world's second-largest economy were projected to have fallen 8.0% year-on-year, following a drop of 7.9% in April, according to the median forecast of 26 economists in the poll finalised on Monday.

Exports are expected to have shrank 0.4% from a year earlier against growth of 8.5% in April, reflecting weak global demand for Chinese goods and aligning with poor import performance since China brings in parts and materials from abroad to assemble into finished products for export.

China's trade data will be released on Wednesday.

The pessimistic outlook for exports suggests that Chinese exporters have caught up on unfulfilled orders after last year's COVID-19 disruptions and global demand is insufficient to sustain a recovery in outbound shipments.

China's factory activity shrank faster than expected in May on weakening demand, the official manufacturing purchasing managers' index (PMI) showed last Wednesday, but a private sector survey released on Thursday unexpectedly swung to growth.

The official PMI sub indexes for May showed factory output swung to contraction from expansion while new orders, including new exports, fell for a second month.

South Korean shipments to China, a leading indicator of China's imports, slid 20.8% in May, marking the 12th straight annual loss, but the pace eased to the slowest seen in seven months.

China's economy grew faster than expected in the first quarter due to robust services consumption, but factory output has continued to lag amid persistent weak global growth.

Analysts are now downgrading their expectations for the economy with Nomura and Barclays (LON:BARC) both cutting China's 2023 GDP growth forecasts

The government has set a modest GDP growth target of around 5% for this year, after badly missing the 2022 goal.

(Polling by Devayani Sathyan and Sujith Pai; Reporting by Joe Cash; Editing by Jacqueline Wong)

By Kevin Buckland

TOKYO (Reuters) - The dollar firmed against major peers in Asian trading after a robust U.S. jobs report spurred traders to price in higher interest rates for longer.

The Australian dollar erased early losses after a report showed a pick-up in services activity in key trading partner China. The yuan also got a boost.

The Canadian dollar proved resilient, buoyed by a spike in crude oil prices.

The U.S. dollar garnered support from higher Treasury yields after data on Friday showed payrolls in the public and private sector increased by 339,000 in May, far outstripping the 190,000 forecast on average by economists polled by Reuters.

The U.S. currency gained 0.11% to 140.135 yen, as 10-year U.S. Treasury yields climbed more than 3 basis points to 3.727% in Tokyo. The dollar rallied 0.84% against the yen on Friday.

The euro slipped 0.04% to $1.0702, extending the previous session's 0.51% slide.

While headline U.S. jobs growth was much stronger than expected in May, wage pressures eased and the unemployment rate climbed off a 53-year low, potentially giving the Federal Reserve scope to pause their rate hiking campaign at the upcoming June 13-14 meeting, as some officials had voiced a preference for doing last week.

However, those bets simply shifted to July, and traders eased off on bets for rate cuts later in the year.

CME Group's (NASDAQ:CME) FedWatch tool shows interest rate traders are laying 1-in-4 odds for a hike next week, down from 2-in-3 odds a week earlier. For July, markets put 70% odds for rates to be at least a quarter point above where they are currently.

"It's very data-driven, and given that wages are moderating, it would point to a potential pause - but I don't believe they're done," said Bart Wakabayashi, a branch manager at State Street (NYSE:STT) in Tokyo.

"The dollar overall is going to remain well supported."

Wakabayashi expects the dollar to push up to 142.50 yen, and a clear break of that would open the way to 145.

"If there are any dips, there are going to be people looking to buy dollar-yen," he said.

The Aussie was flat at $0.6605, recovering from early losses of as much as 0.25%, aided by more evidence of China's recovery from the pandemic. The private-sector Caixin/S&P Global services purchasing managers' index (PMI) rose to 57.1 in May from 56.4 in April - contrasting with the official PMI released last week that showed a slower pace of expansion.

The yuan edged up, reversing an earlier decline. The U.S. dollar was 0.03% lower at 7.1074 yuan in offshore trading, after earlier gaining 0.15%. It reached a six-month high at 7.1404 on Thursday.

The Canadian dollar was also firm, amid a more than 1% rise in crude prices after Saudi Arabia announced its biggest production cut in years. The greenback slipped 0.06% to C$1.34265, approaching Friday's two-week low of C$1.3408.

Dollar edges up as US rates seen higher for longer

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Investing.com -- The economic calendar is light in the coming week but rate decisions in Canada and Australia will be in the spotlight in the run-up to the Federal Reserve’s keenly anticipated announcement on June 14. Investors remain cautious despite a rally in tech stocks and market watchers will get an update on the outlook for the global economy. Here’s what you need to know to start your week.

U.S. data

With the Fed entering its traditional blackout period ahead of its June 13- 14 meeting there will be no officials discussing the monetary policy outlook.

Friday’s mixed U.S. employment report showed job growth accelerating in May but also indicated that wage gains are moderating. An increase in the unemployment rate added to the view that conditions in the labor market are easing.

The jobs data underlined expectations for the Fed to pause hiking rates at its upcoming meeting. It would be the first halt since the Fed started its aggressive anti-inflation policy tightening more than a year ago.

The ISM services PMI is out on Monday and is expected to point to a still solid rate of expansion, in contrast with the manufacturing PMI which contracted for a seventh straight month in May.

Other reports include Wednesday’s trade figures and Thursday’s initial jobless claims numbers.

Stock market gains

Some investors are becoming increasingly wary about how much market gains have come to be dominated by the out-performance of a small handful of megacap stocks while the rest of the market treads water.

The tech-heavy Nasdaq 100 has gained 33% so far in 2023 and the benchmark S&P 500 has risen 11.5% year to date, currently standing at a 10-month high.

The combined weight of five stocks - Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Google-parent Alphabet (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN) and Nvidia (NASDAQ:NVDA) - now accounts for 25% of the S&P 500’s market value, with the buzz around advances in artificial intelligence fuelling hopes for significant future gains.

A rally concentrated in a handful of stocks raises questions about the health of the broader market and risks igniting volatility if investors ditch those megacap holdings.

Central bank decisions

Ahead of the Fed’s upcoming meeting the Reserve Bank of Australia and the Bank of Canada will both hold policy meetings this week, as officials in both countries grapple with still persistent inflation.

Tuesday’s RBA decision could go either way after April inflation data rose much more strongly than expected.

Rates are already at an 11-year peak after a surprise hike last month, with RBA governor Philip Lowe saying he wanted to send a clear message that the central bank will do whatever it takes to win the inflation fight.

Meanwhile, markets expect the BOC to deliver a hawkish hold - indicating that they could raise rates again in July unless there is evidence of cooling inflation.

Eurozone

In the Eurozone, data on Monday will show how the German economy performed at the start of the second quarter, with data on trade, factory orders and industrial production due out after data last week showing that the bloc’s largest economy slid into recession in the first quarter.

The European Central Bank is to publish the results of its consumer expectation survey on Tuesday which will show whether inflation expectations are becoming more entrenched.

ECB President Christine Lagarde is to testify before the Committee on Economic and Monetary Affairs of the European Parliament on Monday and her comments will be closely watched.

Other ECB officials due to make appearances before the central bank enters its quiet period on Thursday ahead of its June 15 meeting include board members Luis de Guindos and Fabio Panetta.

World Bank and OECD global economic forecasts

Investors will get an update on the outlook for the global economy when the World Bank releases its latest projections for global growth on Tuesday, followed a day later by OECD with its own forecasts.

Last month the World Bank warned of a slow-growth crisis in the global economy that could persist over the coming decade amid financial sector turmoil, high inflation, the ongoing effects of Russia’s invasion of Ukraine, and three years of COVID-19.

Meanwhile, OECD raised its forecasts for global growth back in March saying it expects global growth to reach 2.6% this year and 2.9% in 2024 but warned that the outlook remains fragile, and risks remained tilted to the downside.

--Reuters contributed to this reportInvesting.com -- The economic calendar is light in the coming week but rate decisions in Canada and Australia will be in the spotlight in the run-up to the Federal Reserve’s keenly anticipated announcement on June 14. Investors remain cautious despite a rally in tech stocks and market watchers will get an update on the outlook for the global economy. Here’s what you need to know to start your week.

U.S. data

With the Fed entering its traditional blackout period ahead of its June 13- 14 meeting there will be no officials discussing the monetary policy outlook.

Friday’s mixed U.S. employment report showed job growth accelerating in May but also indicated that wage gains are moderating. An increase in the unemployment rate added to the view that conditions in the labor market are easing.

The jobs data underlined expectations for the Fed to pause hiking rates at its upcoming meeting. It would be the first halt since the Fed started its aggressive anti-inflation policy tightening more than a year ago.

The ISM services PMI is out on Monday and is expected to point to a still solid rate of expansion, in contrast with the manufacturing PMI which contracted for a seventh straight month in May.

Other reports include Wednesday’s trade figures and Thursday’s initial jobless claims numbers.

Stock market gains

Some investors are becoming increasingly wary about how much market gains have come to be dominated by the out-performance of a small handful of megacap stocks while the rest of the market treads water.

The tech-heavy Nasdaq 100 has gained 33% so far in 2023 and the benchmark S&P 500 has risen 11.5% year to date, currently standing at a 10-month high.

The combined weight of five stocks - Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Google-parent Alphabet (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN) and Nvidia (NASDAQ:NVDA) - now accounts for 25% of the S&P 500’s market value, with the buzz around advances in artificial intelligence fuelling hopes for significant future gains.

A rally concentrated in a handful of stocks raises questions about the health of the broader market and risks igniting volatility if investors ditch those megacap holdings.

Central bank decisions

Ahead of the Fed’s upcoming meeting the Reserve Bank of Australia and the Bank of Canada will both hold policy meetings this week, as officials in both countries grapple with still persistent inflation.

Tuesday’s RBA decision could go either way after April inflation data rose much more strongly than expected.

Rates are already at an 11-year peak after a surprise hike last month, with RBA governor Philip Lowe saying he wanted to send a clear message that the central bank will do whatever it takes to win the inflation fight.

Meanwhile, markets expect the BOC to deliver a hawkish hold - indicating that they could raise rates again in July unless there is evidence of cooling inflation.

Eurozone

In the Eurozone, data on Monday will show how the German economy performed at the start of the second quarter, with data on trade, factory orders and industrial production due out after data last week showing that the bloc’s largest economy slid into recession in the first quarter.

The European Central Bank is to publish the results of its consumer expectation survey on Tuesday which will show whether inflation expectations are becoming more entrenched.

ECB President Christine Lagarde is to testify before the Committee on Economic and Monetary Affairs of the European Parliament on Monday and her comments will be closely watched.

Other ECB officials due to make appearances before the central bank enters its quiet period on Thursday ahead of its June 15 meeting include board members Luis de Guindos and Fabio Panetta.

World Bank and OECD global economic forecasts

Investors will get an update on the outlook for the global economy when the World Bank releases its latest projections for global growth on Tuesday, followed a day later by OECD with its own forecasts.

Last month the World Bank warned of a slow-growth crisis in the global economy that could persist over the coming decade amid financial sector turmoil, high inflation, the ongoing effects of Russia’s invasion of Ukraine, and three years of COVID-19.

Meanwhile, OECD raised its forecasts for global growth back in March saying it expects global growth to reach 2.6% this year and 2.9% in 2024 but warned that the outlook remains fragile, and risks remained tilted to the downside.

--Reuters contributed to this report

TOKYO (Reuters) - Japan's service sector activity expanded at a record pace in May, a private-sector survey showed on Monday, thanks to a recovery in overseas demand and a surge of foreign tourists as pandemic restrictions were eased further.

The final au Jibun Bank Japan Services purchasing managers' index (PMI) rose to a seasonally adjusted 55.9 last month from the previous peak of 55.4 in April.

That compared with the flash reading of 56.3 and was well above the 50-mark that separates expansion from contraction for a ninth straight month.

"Firms were buoyed by the easing of the few remaining pandemic restrictions and have noted strong increases in demand, notably from overseas and inbound tourism," said Usamah Bhatti, economist at S&P Global (NYSE:SPGI) Market Intelligence.

"The upward trend looks set to continue in the near and medium term," as outstanding business expanded at a record rate and business optimism held near an all-time high.

The government has scrapped strict pandemic-related border controls and reclassified COVID-19 to the same level as seasonal flu.

The number of foreign visitors to Japan climbed to a post-pandemic high of nearly 2 million in April.

The subindex measuring outstanding business rose at the fastest pace on record as disruptions caused by the pandemic continued to wane.

Business expectations for the coming year remained robust, though the pace of increase slowed slightly from April, the survey showed.

Service sector companies hired more workers for the fourth month in a row, with the rate of job creation the second fastest since September 2007.

Input prices and prices charged for services continued to rise but at a slower pace than in April.

The composite PMI, which combines the manufacturing and services activity figures, expanded at the fastest pace since October 2013. The index advanced to 54.3 in May from 52.9 in April, staying above the break-even 50 mark for the fifth straight month.

By Sam Nussey

TOKYO (Reuters) - SoftBank Group Corp shares jumped 5% in early Friday trade as the technology investor - which is preparing an initial public offering of chip designer Arm - was caught up in a frenzy for semiconductor and artificial intelligence-related stocks.

The Japanese conglomerate, which has been hit by the slumping value of its tech portfolio, has seen its shares gain 17% since last week's close.

Still, they are up only 6.4% year-to-date, compared with 172% for U.S. chipmaker Nvidia (NASDAQ:NVDA) Corp - an expected beneficiary of investment in AI - and 39% in the Philadelphia SE Semiconductor Index.

On Friday, SoftBank passed the psychological level of 6,000 yen for the first time since February.

"We expressed a view that SBG stock will rally ahead of the ARM IPO later in the year... But given (the) market's fascination for semi-stocks, we think it makes sense to move early," Jefferies analyst Atul Goyal wrote in a client note, upgrading his recommendation on the stock to "buy".

Other beneficiaries of enthusiasm for chip-related stocks included equipment makers Advantest Corp and Tokyo Electron Ltd, which have climbed 109% and 50% respectively year-to-date.

SoftBank CEO Masayoshi Son, who has argued that the rise of artificial intelligence drives his investments, has also been caught up in recent enthusiasm for generative AI, which proponents compare to the arrival of the internet.

"He feels that 'finally my time has come'," SoftBank Chief Financial Officer Yoshimitsu Goto told reporters at an earnings briefing last month.

By Doyinsola Oladipo

NEW YORK (Reuters) - Airbnb Inc on Thursday filed a lawsuit against New York City over a new law it called a "de facto ban" against short-term rentals set to go into effect in July, which the company says will limit the number of people who can host rentals in the city.

City councils around the United States are increasingly introducing ordinances to regulate short-term rentals. Some of them require hosts to obtain licenses and pay registration fees or limit short-term rentals in business districts.

The company's filing in the New York State Supreme Court says New York's city council, through legislation passed in 2022, effectively implemented "its most extreme and oppressive regulatory scheme yet, which operates as a de facto ban against short-term rentals in New York."

Airbnb, in a letter to hosts, said "today’s filing comes only after exhausting all available paths for a sensible solution with the City."

The law, according to the filing, will make it more difficult for hosts to do business, requiring them to register with the New York City Mayor's Office of Special Enforcement (OSE) and to certify that they will comply with "the maze of complex regulations" for zoning, multiple dwelling law and housing maintenance code as well as construction code.

The short-term rental company is requesting that the court blocks the enforcement of "Local Law 18".

OSE application reviews will ensure "that only a miniscule number of hosts will ever be granted a registration," Airbnb said in the filing.

A New York City spokesperson said in a statement that the administration of Mayor Eric Adams "is committed to protecting safety and community livability for residents, preserving permanent housing stock, and ensuring our hospitality sector can continue to recover and thrive."

The Mayor's office said it will review the lawsuit.

Airbnb said that in the first week of July, more than 5,500 short-term rentals are reserved to host more than 10,000 guests in New York City.

The company said in the filing a previous law which went into effect in 2021 prompted 29,000 hosts to leave the short-term rental market in New York.

The number of short-term rental listings available in New York City increased 27% year-over-year in April 2023 but listing counts are 32% below 2019 levels, according to short-term rental analytics company AirDNA.

"The vast majority of listings in New York are either private or shared rooms, commercial properties, or listings that only support long-term stays," said AirDNA Chief Economist, Jamie Lane.

Airbnb’s annual net revenue in New York City in 2022 was $85 million, according to the filling.

By Lucia Mutikani

WASHINGTON (Reuters) - U.S. job growth likely slowed in May, with wages coming off the boil, potentially allowing the Federal Reserve to skip an interest rate hike this month for the first time since embarking on its aggressive policy tightening campaign more than a year ago.

Nevertheless, the Labor Department's closely watched employment report on Friday is expected to still show the labor market remaining tight. The unemployment rate is forecast climbing to 3.5% from 3.4% in April but the report will confirm that the economy remained far away from a dreaded recession, though more pockets of weakness are emerging.

"The jobs report is likely to show another step down in the pace of growth, but still a very strong labor market," said Bill Adams, chief economist at Comerica (NYSE:CMA) Bank in Dallas. "The Fed is under less pressure to raise interest rates at its meeting this month, than at any time over the last year and a half."

The survey of establishments is likely to show nonfarm payrolls increased by 190,000 jobs last month after rising 253,000 in April, according to a Reuters survey of economists.

It would mark a slowdown from the monthly average of 285,000 in the first four months of this year, but stay well above the 70,000-100,000 needed per month to keep up with growth in the working-age population.

Data for March and April would be closely watched for revisions. The government lowered employment gains in February and March by a combined 149,000 last month.

Despite massive layoffs in the technology sector after companies over-hired during the COVID-19 pandemic and the drag from higher borrowing costs on housing and manufacturing, the services sector, including leisure and hospitality, is still catching up after businesses struggled to find workers over the last two years. Industries like healthcare and education also experienced accelerated retirements.

The backfilling of these retirements and increased demand for services are some of the factors driving job growth. Pent up demand for workers was underscored by Labor Department data this week showing there were 10.1 million job openings at the end of April, with 1.8 vacancies for every unemployed person.

But cracks are emerging. A Conference Board survey on Tuesday showed the share of people viewing jobs as "plentiful" dropped in May to the lowest level since April 2021.

While the Fed's "Beige Book" report on Wednesday described the labor market as having "continued to be strong" in May, it noted that "many contacts" were "fully staffed," and some "were pausing hiring or reducing headcounts."

Temporary help employment, a harbinger for future hiring, is down by 174,000 since its peak in March 2022.

PROGRESS ON INFLATION

But the overall labor market remains upbeat, with first time applications for state unemployment benefits hovering at very low levels. Most economists expect payrolls growth to continue at least through the end of the year.

Average hourly earnings are expected to have risen by 0.3% after jumping 0.5% in April, which was attributed to a calendar quirk. That would keep the year-on-year increase in wages unchanged at 4.4% in May. Annual wage growth averaged about 2.8% prior to the pandemic.

Slowing wage inflation is corroborated by other measures like the Atlanta Fed's wage tracker, which has come off its peaks. Government data on Thursday showed sharp downward revisions to unit labor costs in the first and fourth quarters.

"We're making progress on inflation, you can't expect the inflation problem to go away in a year," said Brian Bethune, an economics professor at Boston College. "It doesn't make sense to push the economy into some kind of artificial recession, because you're going to do more harm than good."

Financial markets see a nearly 70% chance of the Fed keeping its policy rate unchanged at its June 13-14 meeting, according to CME Group's (NASDAQ:CME) FedWatch Tool. The Fed has raised its benchmark overnight interest rate by 500 basis points since March 2022.

The average workweek is forecast unchanged at 34.4 hours. Some companies are probably reducing hours rather that cut jobs.

The household survey from which the unemployment rate is calculated is likely to show solid employment gains, though an ongoing strike by 11,500 members of the Writers Guild of America poses a downward risk. The Labor Department's Bureau of Labor Statistics, which compiles the employment report, did not record the work stoppage in its May strike report.

"Those striking workers could show up as unemployed in the household survey, however," said Nancy Vanden Houten, lead U.S. economist at Oxford Economics in New York.

The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one, was likely unchanged at 62.6% after a recent surge in participation in the prime age group.