This shortened week is dominated by a veritable explosion of critical jobs market data on Thursday. As Citi's Steven Englander notes, there are five key US labor indicators - two of which will be initial asset market drivers: Citi expects disappointment; and three more that will give signals more relevant to the medium term evolution of asset markets and Citi think will give a more positive signal.
Via Citi's Steven Englander,
Below we look at five key US labor market data to be released Thursday, July 3 at 8:30AM.
Starting from the standard to the less followed:
1) NFP -- median 215k, Citi 190k. Of 59 published forecasts 52 are in a 190-230k range, so the consensus range is tight again. The skew is to the upside, but right now the strongest support for the USD comes from the labor market, so a 190k disappointment will likely push bond yields down more than a 230k will push them up
2) UR/labor force – consensus flat at 6.3% but most 20 of 56 forecasters see 6.2%, suggesting pessimism on labor force participation. Two sided risk here because further decline in UR brings even doves closer to full employment (although they may argue that full employment is lower than 5 ¼- 5 ½% ). Pop to 6.4% will support Fed Chair Yellen view that there is a reserve army of workers available. Participation rates show no sign of rising (Figure 1). Best outcome for bonds and equities, worst for USD, is UR moving up on participation rates gains.
3) Average hourly earnings – we like to look at production workers because production workers wages are better measured, they are 80% of all private sector employees and their wages are roughly half of the remaining 20% (so they qualify as working class). It is likely that total AHE will pull back on a y/y basis because of base effects, but these base effects are less visible in production worker wages so it is possible that these could accelerate to 2.5% y/y, which would be the highest since 2010.
4) Construction worker hires – there has been a lot of volatility in construction hires and a weak December will be dropping out of the six-month average. Were hires to be around 25k we would be close to the 2013 cyclical high in construction, suggesting that construction is back on track.
5) Hospital employment
This is what made Q1 look dreadful. We already see a bounce in hospital employment in April and May. It is hard to see why hospitals would be hiring if demand is as dreadful as BEA assumptions make out. Another month of gains and it will become likely that the Q4 spike/Q1dive were the aberrations.
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1) and 2) will be the initial asset market drivers and Citi economists lean to a modest disappointment on headline NFP.
By contrast, 3), 4) and 5) will give signals more relevant to the medium term evolution of asset markets and we think will give a more positive USD signal.