In what may be one of the least relevant payroll reports in a long time as the Fed already knows the labor market is doing better quantiatively (qualitatively it has been all about low-paying jobs gaining at the expense of higher paying manufacturing and info-tech positions) and as has further demonstrated it is no longer jobs data dependent, here is what Wall Street consensus expects: total payrolls +200,000, down from 215K in March; a 4.9% unemployment rate; average hourly earnings rising 0.3% (last 0.3%) M/M and 2.4% Y/Y (last 2.3%); on labor force participation of 63%.
As RanSquawk adds, expectations are for a reading of 200K, squarely in-line with the Fed's benchmark figure, representing continued strength in the labour market. Given the middle of the road expectations, some may take note of yesterday's ADP report, which came in well below expectations (156K vs. Exp. 195K (Prev. 200K, Rev.194K) despite it being widely considered an unreliable indicator. Other recent labour market indicators show that the US labour market is still in fine health, however, the most recent Job Openings and Labour Turnout Survey (JOLTS) came in just below expectations (5445 vs. Exp. 5490, Prev. 5541, Rev. 5604) but printed a strong 5K+ reading none the less. Finally, last month's NFP report printed higher than expected unemployment (5.0% vs. Exp. 4.9%), although some noted that this was partly due to an uptick in the labour force participation rate. If the headline comes in reasonably close to the expected, this metric could garner particular focus given the weakness last time round.
The previous FOMC meeting saw the Fed keep rates on hold, with Esther George the lone dissenter and shed little light on the gradient of the rate hike path. They did however express a rather dovish tone on inflation expectations, and since then (April 27th) the USD has weakened significantly, printing fresh year lows in this week's session. Fed rhetoric since the meeting has largely been a reiteration of the statement provided with the rate decision, although there has been a renewed emphasis on the data dependency of the Fed.
Forecasts by bank:
- BNP Paribas: 175K
- Deutsche Bank: 175K
- US Estimates Citi: 190K
- HSBC: 191K
- BoFA: 200K
- Wells Fargo: 213K
- Lloyds: 215K
- BBVA: 227K
- SocGen: 228K
- Goldman: 240K
- JPMorgan: 250K
The full expectations histogram:
Here is a quick summary of market sentiment heading into payrolls courtesy of DB and Joe LaVorgna who has one of the most bearish forecasts at 175K (vs 200K consensus), and well below one of the most bullish calls, that from Goldman which sees 240K.
Welcome to random number generator day, also more commonly known as US nonfarm payrolls. The current consensus forecast is for a 200k print this afternoon although it’s interesting to see that the range of forecasts are from as low as 160k to as high as 315k. Our US economists are sitting at the lower end of that range and are forecasting for a below-market 175k gain. This is based on their view that upon closer inspection of the sectors responsible for job growth last quarter, the details reveal that retail trade has accounted for a disproportionate share of these gains (in the fact the pace of which is the fastest since 1994). They expect the pace of hiring in this sector to moderate somewhat closer to its 12-month average this month. As well as this, temp hiring, which has historically been a leading indicator of payroll growth, has declined over the same period and so these trends together contribute to their below-consensus forecast.
If DB is the bearish case, Goldman is the bull. Here it is summarized:
We expect a 240k gain in nonfarm payroll employment in April. We increased our forecast from an initial estimate of 225k published last Friday as a result of the improvement in the employment component of the ISM non-manufacturing survey released this week. Our revised estimate is above consensus expectations for a 200k increase. Most labor market indicators were roughly in line with their recent trends in April, but improvements in reported job availability and the ISM non-manufacturing survey suggest a bit more strength. Payroll employment rose 215k in March and has risen at an average pace of 209k over the last three months and 234k over the last year.
Arguing for a stronger report:
- Service sector surveys. The employment components of the service sector surveys were mixed in April, but we attach the greatest weight to the ISM non-manufacturing survey, whose employment component rebounded from recent lows (+2.7pt to 53.0).
- Job availability. The Conference Board’s labor differential—the difference between the share of consumers saying jobs are plentiful vs. hard to get—improved a touch to +1.4 in April from +0.2 in March. The index remains below the highs reached in prior expansions.
Arguing for a weaker report:
- ADP. ADP reported a 156k gain in private payroll employment in April, about 50k below the recent average.
- Weather. Winter weather swings can have large effects on payrolls, especially in the construction and leisure and hospitality sectors.
- Manufacturing surveys. The employment components of the manufacturing surveys were mixed to softer in April
- Jobless Claims. The four-week moving average of initial jobless claims leading into the payroll reference week was basically unchanged.
- Online job ads. The Conference Board’s Help Wanted Online (HWOL) report showed increases in both new and total online ads in April.
- Job cuts. According to the Challenger, Gray & Christmas report, job cuts were roughly flat on a seasonally-adjusted basis. Job cuts in the energy sector remained elevated in April.
As Bloomberg's Richard Breslow adds, "partially because of Wednesday’s non-manufacturing ISM and more probably because DXY had a good week, economist forecasts have been ratcheted up. The whisper number, however, seems to be all over the place, suggesting traders are unconvinced about what the market will do under various outcomes. Overnight options volatility shows little anxiety or commitment."
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For traders' benefit here is a "rule of thumb primer on how to trade today's report from BofA:
Post-payroll market reactions: bullish for HY & stocks if "Goldilocks" release (175-225K); most bullish for gold & Treasuries if weak payroll (<125-150K); most bullish for $, Tech, Europe, Japan if strong payroll (>250K)
Some more thoughts from RanSquawk:
Given the backdrop of USD weakness, any surprise reading to the upside could lead to some significant USD strengthening, especially when one considers the interest rate differentials between the US, Europe and Japan. Conversely, given strong labour conditions are now a fundamental pillar in all present Fed and market models for the future tightening of monetary policy, any surprise to the downside could cause the USD to re-test the weeks (and Year) lows. Should the headline print relatively inline, focus may fall upon the other metrics in the report. Given the concentration of fed rhetoric on inflation forecasts, particular attention may be on average hourly earnings given its implications on wage inflation.
Finally, here is Richard Breslow's full take on why "NFP wil tell an anecdote not a story"
Looking ahead to today’s nonfarm payroll report, you have to ask yourself two questions. How am I going to trade the numbers? And what does this mean for the FOMC in June and beyond? The answers are likely to be, quite rightly, different.
NFP days tend toward the volatile, so outlier numbers really do matter for trading. But the Fed already knows the labor market is doing better. It’s not what’s keeping them on hold.
The wage piece is the only component with lasting potential to change the narrative. Narrative means market versus central bank rate hike expectations, not speeches. And not whether June is a “live meeting” or not.
Partially because of Wednesday’s non-manufacturing ISM and more probably because DXY had a good week, economist forecasts have been ratcheted up. The whisper number, however, seems to be all over the place, suggesting traders are unconvinced about what the market will do under various outcomes. Overnight options volatility shows little anxiety or commitment.
Even with estimate creep, bond yields have been bid and futures remain priced at 10% rate hike chance for June. It was telling (and amusing) yesterday, that while Fed speakers were inspiring headlines like, “Fed’s Williams says 2 or 3 rate hikes this year seems reasonable,” yields kept ticking lower.
In the last 24 hours alone, three more central banks joined the growing list of those worried about global growth and falling inflation. Australia and Czech Republic both warned of downward price pressures. Mexico said that since March the international outlook has deteriorated and warned of renewed risk of heightened financial market volatility. And don’t forget, developments in Turkey are potentially very bad news for Europe counting on a deal over refugees.
Trade today like there’s no tomorrow, because come Monday we’ll again be data-dependent, June live and wondering what’s the next shoe to drop.