NFP Preview: Traders More “In The Dark” Than Usual

“Time flies when you’re having fun”, and sure enough, it’s already time for another Non-Farm Payrolls report!

Last month’s reading on the US labor market was most remarkable for how unremarkable it was. The combination of a slight beat on headline job growth and a slight miss in wage growth led to one of the most subdued market reactions in recent memory, with the US dollar, US stock indices, gold, and 2-year treasury yields all moving less than 0.1% on the release. After Fed Chairman Powell reiterated the central bank’s data-dependent stance yesterday, we expect more volatility around this month’s NFP report.

Heading into the release, economists are looking for net job growth of 181k, with average hourly earnings expected to rise at 0.3% m/m and the unemployment rate anticipated to hold steady at 3.8%. Over the last 3 months, the US economy has created an average of exactly 180k new jobs, so the market is essentially projecting another steady-but-unimpressive reading.

NFP Leading Indicators

Predicting a single month’s Non-Farm Payroll reading is always a tough endeavor, and the task is even more difficult this month because one of our favorite “leading” indicators, the ISM Services PMI report, is scheduled for release 90 minutes after the jobs report. Nonetheless, the other leading indicators for NFP paint a mixed picture:

  • The ADP Employment report spiked to 275k, making up for last month’s (upwardly revised) 151k reading.
  • The ISM Manufacturing Survey employment component dropped by over five points to 52.4 (from 57.5 last month).
  • The 4-week moving average of initial unemployment claims held steady at 212,500.



Forecast and Potential Market Reaction

The historically low reading on initial unemployment claims and the strong ADP employment report have us leaning toward a better-than-expected report, albeit with more uncertainty than usual given the lack of the Services PMI survey.

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