Your Last Minute Payrolls Preview: What Wall Street Expects

In just over half an hour, the BLS will report the latest, January jobs report which is expected to see a steep drop from December's 292K job gain, to just 190K, the lowest print since September, following a spike in poor economic data in recent weeks most notably the lousy employment prints in the latest ISM reports. This, together with the Fed's recent hint at relenting at hiking rates in 2016, is why according to DB, the whisper number for today is well lower, and "probably closer to 150k." To be sure, the market would love nothing more than a very low payrolls number as that would assure no rate hikes until well in the second half, if ever.

Here are Wall Street's official consensus predictions of what to expect today:

  • US Change in Nonfarm Payrolls (Jan) M/M Exp. 190K (Low 142K, High 260K), Prey. 292K, Nov. 211K
  • US Unemployment Rate (Jan) M/M Exp. 5.0% (Low 4.8%, High 5.1%), Prey. 5.0%, Nov. 5.0%
  • US Average Hourly Earnings (Jan) M/M Exp. 0.3% (Low 0.1%, High 0.4%), Prey. 0.0%, Nov. 0.2%

Broken down by bank:

  • JPMorgan:175K
  • Deutsche Bank: 175K
  • BNP Paribas: 175K
  • Morgan Stanley: 180K
  • Goldman Sachs: 190K
  • UBS: 190K
  • HSBC: 214K
  • Citi: 225K
  • SocGen: 245K

And here are some summary thoughts from RanSquawk on how to interpret and trade the data:

January saw a difficult month across major US asset classes with US equities falling by 8% YTD, with risk-off sentiment apparent throughout the market which we most recently saw on Wednesday where USD/JPY broke back below the level seen post-BoJ decision to introduce negative rates on Friday. Heading into the reading itself, December's report provided us with a strong beat on the expected, coming in at 292K, while expectations for January stand at a slightly more modest 190K. Unemployment is expected to remain unchanged at 5.0%, maintaining its run of the lowest reading since Apr'08. Due to the fact that the Fed have stressed that their focus is on global and economic developments given the recent volatility, it is unlikely that one single jobs report will have a large sway on the FOMC's decisions for the rest of the year. There is also the relatively pessimistic market expectation to account for and it is unlikely the Fed will gain enough information from this jobs report regarding the state of the economy to continue on their estimated trajectory.

In terms of the recent labour data. Wednesday's ADP report saw a marginal beat on expectations by 10K, printing 205K with the previous revised higher by the same amount to 267K. More notably however was the latest ISM non-manufacturing release where the employment index declined to 52.1 vs. Prev. 56.3, which matched the lowest reading since Apr'14, however. Additionally, Monday's ISM manufacturing release saw the employment index print at 45.9 vs. Exp. 48.0, showing continued divergence.

Analysts have stated that the reasoning behind a significantly lower estimate on the headline reading relative to last month is due to a large number of seasonal layoffs being pushed into January due to the later winter conditions for a large part of the country and this is reflected in their estimate of a reduction of over 100K. Additional commentary suggests that wage growth will remain in focus due to the consumer impact on the economy which the Fed remain vigilant on. Analysts have also noted that there is the potential for mining and manufacturing jobs growth to remain flat while upside could be seen in services and the government sector.

Market Reaction

Due to the FOMC likely to wait for stronger readings that the economy is improving, this report is likely to be assessed on its near-term economic outlook. Therefore, focus is less on when the FOMC are next looking to increase rates. With the release being the largest data point out of the US, the headline reading is likely to create some initial volatility and will be taken at face value. A lot of the data this week has posted a dreary outlook for the US economy, therefore a decidedly negative jobs report or anything lacking inspiration is likely to compound USD weakness and see yields fall across the curve. However strong results across all readings and most notably the average hourly earnings releases, could see the opposite occur.