Previewing Today's Nonfarm Payrolls Report

What Wall Street is expecting:

  • US Change in Nonfarm Payrolls (Aug) M/M Exp. 230K (Low 190K, High 310K), Prev. 209K, June 288K.
  • US Unemployment Rate (Aug) M/M Exp. 6.1% (Low 6.0%, High 6.2%), Prev. 6.2%, June 6.3%.
  • Today’s number is not expected to change the path of the Fed’s QE although a strong number could strengthen expectation of Fed tightening sooner rather than later, with expectations already heightened by recent positive data releases
  • Once again focus will fall on signs of real wage growth after Yellen’s comments recently draws participant’s attention to underutilised labour resources

Expectations broken down by bank, with a full universe range of 190K to 310K.

  • Barclays 200K
  • Citigroup 200K
  • Deutsche Bank 200K
  • HSBC 215K
  • JP Morgan 225K
  • UBS 230K
  • Goldman Sachs 240K
  • Morgan Stanley 250K

And some additional thoughts from RanSquawk:

Earlier this month saw the FOMC meeting emphasize that labor market slack had improved faster than expected and that the labor market was now closer to what might be considered normal in the longer run, so although the Fed has acknowledged an improvement in the headline figures, there is still progress that needs to be made. Focus will likely fall on wage growth once again after Fed Chair Yellen’s comments at Jackson Hole indicated that the FOMC sees significant under-use of labour resources and after a less-than-impressive decline in average hourly earnings seen from last month’s report.

Despite this, today’s number is not expected to alter the course of the Fed’s monetary policy, with many officials on the FOMC indicating the end of QE will come in October this year. Recent data out of the US has boosted the markets confidence in the US economy recently, with the employment sub-component of the ISM non-manufacturing on Thursday the highest reading seen since February 2006, and ADP Employment holding on above 200K despite a mild miss on expectations this week at 204K from the street’s forecast of 220K. There remains a close correlation between ADP and NFP, as demonstrated last month after ADP came in at 218K (now revised to 212K) compared to 209K for Non-Farm Payrolls.

One final point worth bearing in mind is that last month’s reading was boosted by hiring in the motor vehicle sector, and although this is likely to be factored into expectations for today’s reading, one seasonal factor which could boost the reading for August may be the start of the new academic year as institutions throughout the country look to take on new staff as students head back to school.

Market Reaction

As mentioned previously, any upside or downside surprises in the headline Nonfarm Payrolls reading are unlikely to change the course of Fed tapering, however any further decline in the unemployment rate could see markets bring forward their expectations for the first hike from the Fed. If the main components are broadly in-line, focus could again turn to the Average Hourly Earnings component of the report as the Fed identified that slack remains in the labour market and indicators suggest labour resources remain underutilised. If hourly earnings are higher than expected then the report could be seen as supporting the more hawkish members of the Fed who are calling for a rate hike and as such, equities, Treasuries and gold could all come under pressure while the USD could extend on the multi-month gains seen recently. On the other hand, if NFP is lower than expected, or the unemployment rate unexpectedly increases then it will give Fed Chair Yellen and the more dovish FOMC members’ breathing space and alleviate some of the recent fears of Fed tightening.