Its that time of the month again – US NFP (non-farm payrolls) or unemployment – which sets the tone for the rest of the month on risk markets, as this report is the major release the Federal Reserve uses to hinge its interest rate agenda on.
Heres the five year chart of headline unemployment – thanks for nothing Obama!
source: tradingeconomics.com
As long term unemployment heads down:
source: tradingeconomics.com
Youth unemployment is also trending down:
source: tradingeconomics.com
While wage growth is proving anemic as profits are not filtering through to workers:
source: tradingeconomics.com
Where are the pundits calling it?
- Forecast is at a gain of 180K jobs
- For unemployment rate, GS is at 4.7%
- Average hourly earnings, looking for +0.3% m/m and +2.8% y/y
- Forecast for steady payroll gains
- Reflects encouraging labor market surveys overall
“We expect employment growth to continue at the current pace in the coming months,” said Danske Bank analysts Mikael Olai Milhøj and Mark Thybo Naur.
“The FOMC has turned more dovish this year as voting rights have shifted, which emphasises the importance of strong labour market performance and continued progress on unemployment and wage growth.”
The analysts said they believe triggers for the next interest rate increase include higher wage growth to ensure a sustained rise in core inflation, a lower unemployment rate and a higher core personal consumption expenditure price index.
The minutes of last month’s policy meeting showed that several committee members believed the current policy path of gradual rate increases was not likely to be appropriate due to a “number of risks that, if realised, might call for a different path of policy than the currently expected”.
The Fed said the biggest risk was that the unemployment rate might fall sharply below the 4.5% “longer-run normal unemployment rate”, which could prompt a surge in inflation.
“Many participants judged that the risk of a sizable undershooting of the longer-run normal unemployment rate had increased somewhat and that the Committee might need to raise the federal funds rate more quickly than currently anticipated to limit the degree of undershooting and stem a potential build-up of inflationary pressures,” the minutes revealed.
Given anemic wage growth and underlying inflation still hovering just above 2%:
source: tradingeconomics.com
Tonight’s NFP would need to surprise in a big way to the upside to get the Fed to hit the accelerator.