Perhaps one of the most notable features of the upcoming nonfarm payrolls report - which those with a flair for the dramatic have once again dubbed the "most important ever" simply because it may greenlight (or not) a Fed rate hike (any NFP print at 230K and above likely assures a September move by the Fed - which Wall Street consensus sees rising by 217K in August (although with Goldman a far below consensus 190K, and Wall Street's biggest cheerleader Joe LaVorgna predicting only 170K one has to wonder) is just how hard the punditry is trying to talk it down, with everyone from Joe LaVorgna to Bloomberg explaining why it is very likely that - due to seasonals only, and nothing but seasonals - it will be a weak report, only to be revised higher.
As Bloomberg reminds us, the August NFP has on an average missed economic forecasts by an average of 55k since 2000. The median has been 68K below ests in Bloomberg survey. Worse, it has missed ests 11 of last 15 times, which supposedly confirms some seasonal bias, not that economists are lousy forecasters. In past 18 years, it came below estimates 14 times.
Visually:
So with that caveat out of the way, one which supposedly will seek to ease the blow of a weak number, even if a weak number is precisely what Wall Street demands so the September rate hike is delayed to December or into 2016 and later, here is a snapshot of what all the big banks expect:
- Deutsche Bank - 170K
- Goldman Sachs - 190K
- UBS - 195K
- Morgan Stanley - 205K
- HSBC - 229K
- Bank of America - 200K
- BNP Paribas - 230K
- JPMorgan - 253K
Some further thoughts from RanSquawk on the consensus, how the market may react to the number:
- US Change in Nonfarm Payrolls (Aug) M/M Exp. 217K (Low 130K, High 253K), Prey. 215K, Jun. 223K US
- Unemployment Rate (Aug) M/M Exp. 5.2% (Low 5.1%, High 5.5%), Prey. 5.3%, Jun. 5.3%
- US Average Hourly Earnings (Aug) M/M Exp. 0.2% (Low 0.1%, High 0.4%), Prey. 0.2%, Jun. 0.0%
August's nonfarm payrolls release will be in strong focus ahead of the FOMC rate decision on the 17th September which is still highlighted as a potential date for rate lift-off. Furthermore, it does follow comments over the weekend at the Jackson Hole Symposium from the likes of Fed vice-chair Fischer (Voter, Soft Dove) who stated that the first rate-hike would come when there is "some further improvement in the labour market". Fischer went on to state that it was too early to make a decision on the September meeting. The consensus is for a slight increase on the previous figure at 218K with unemployment expected to fall 0.1pp to 5.2%. Also of note, both the monthly and yearly average hourly earnings figures are expected to remain unchanged at 0.2% and 2.1% respectively.
The recent labour data has been relatively disappointing; the ISM manufacturing employment component came in slightly below previous at 51.2 vs. Prev. 52.7 with ISM non-manufacturing employment at 56.0 vs. Prev. 59.6. Additionally, Wednesday's ADP release came in below expectations at 190K vs. Exp. 200K yet it was still above the previous which was revised lower to 177K. These figures could however suggest some slight disappointment from a Fed perspective, as they continue to look for some further improvement in the labour market. Thursday's initial and continuing jobless claims both came above expectations at 282K vs. Exp. 275K and 2257K vs. Exp. 2253K respectively.
Analysts state that the ADP results are in-line with an economy currently on a 2.0%-2.5% growth path, with limited emphasis being placed on the ADP figures due to being continuously revised. Furthermore, it is worth noting that in the last four August's, the ADP release overestimated the private payrolls release by 67K on average. Analysts have also stated that the recent decline in the US stock market, due to fears of a slowdown in China, have made it hard to distinguish between what was a business cycle reaction or something more fundamental.
Market Reaction
A strong NFP reading alongside the lower unemployment figure is likely to raise expectations of rate-lift off this month and is likely to result in some steepening in the Eurodollars curve. Additionally, the USD-index could strengthen off the back of a good figure and maintain the recent upward trend. However, a miss on expectations could see investors push back rate-hike expectations for the year to either October or December. The market is currently pricing in a 30% probability of a rate hike in September.
