US Change in Nonfarm Payrolls (Nov) M/M Exp. 185K, Low -25K, High 230K (Prev. 204K, Sep 148K)
US Unemployment Rate (Nov) M/M Exp. 7.2%, Low 7.0%, High 7.5% (Prev. 7.3%, Sep 7.2%)
Payroll change estimate by bank:
- HSBC 165K
- Goldman Sachs 175K
- Bank of America 175K
- JP Morgan 180K
- Citigroup 180K
- Deutsche Bank 185K
- UBS 190K
- Barclays 200K
Today sees the release of the US nonfarm payrolls and unemployment figures for November, the last to be released before the FOMC’s final policy decisions for 2013. The release will therefore be keenly-eyed, in order to gauge whether the FOMC will see sufficient strength in the labour market to begin reducing the current pace of USD 85bln per month in Treasury and MBS buys. The importance of today's number was highlighted just over two weeks ago by Fed’s Bullard (voter, dove) who noted that a strong November jobs report would raise the chances of December QE taper.
Last month, the October reading by far exceeded expectations, coming in at 204K versus an expected 120K. The reading was described by renowned WSJ Fed watcher Hilsenrath as “fluky”, saying it required a higher than usual degree of caution. The average for the year prior to the reading (before revisions) was 166k.
Wednesday’s ADP Employment release showed 215k jobs added versus a median expectation of 170k, with the October reading revised higher by 54k. However, correlation between ADP and NFP has been questionable this year, largely due to the ADP reading failing to take account of public employment. Furthermore, this week’s employment components of the ISM readings were mixed; although the manufacturing release showed the highest employment figure since April 2012, the services employment component missed expectations, declining to 52.5 from 56.2 in October.
Meanwhile, having declined from 7.5% to 7.2% between July and September, the unemployment rate increased back to 7.3% in October. However, this was attributed by many to the effects of the government shutdown during that month, whereby furloughed workers were considered as unemployed. Markets will therefore look for this to be corrected.
With seve ral Fed members having stated that a December taper is still an option, today’s report from the BLS has the potential to induce aggressive moves across asset classes. Following the aforementioned ADP release, the US 10y yield printed its highest level since mid-September just below 2.85%. A headline figure towards the top-end or above the expectation range would likely see a similar move, with equities and precious metals also at risk of considerable downside.
Conversely, a lower-than-expected payrolls reading would likely push back taper forecasts and thus generate opposite price action to the above, with USD weakening. However, a reading that is low but well within the expectation range will be unlikely to push taper forecasts beyond March of next year and the subsequent reaction may therefore be subdued.