What To Look Forward to in the Non-Farm Payroll of 4th May 2018

by | May 3, 2018 | GKFX

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Hello and welcome to this market update from me David Morrison senior market strategist at GKFX.

Today we’re looking at the US non-farm payroll release for Friday the 4th of May.  Non-farm payrolls one of the highlights of the economic calendar and something that can really move markets on their release.

Just a quick run-through from what we can expect. Looked at the consensus expectations for the various bits of data because remember it’s not all about the headline payroll figure.

First of all payrolls themselves, we’re looking for an increase of a hundred and eighty-nine thousand that’s rounded up and call it 190,000 after last month’s rather disappointing if not to say slightly dismal reading of a hundred and three thousand which was well below the market expectation.

Now at the same time the unemployment number is expected to come down from 4.1 percent to +4 percent. now this is historically a very very low number indicating that unemployment is near well near record lows in the US. it’s certainly at four percent the lowest it’s been since the end of 2001. now there’s not a lot of sort of controversy about this number because one of the things that plays into the unemployment data is how many people are actually saying that they’re looking for work now the participation rate which is what that measures is really trading at quite low levels around 60 to 63 percent at the moment what this means is that there are people who are able to work but are discouraged and have actively given up looking for work and therefore they don’t count in the unemployment number.

Why is this important? Well some analysts are saying that once unemployment falls below a certain rate and we’re certainly at that rate now discouraged workers should be coming back into the market because there are job opportunities and this, of course, helps to lift wages which plays into higher inflation other analysts are saying no, the situation is different now the problem is that the people who are not looking for work anymore don’t have the skills necessary for good levels of employment so and we have seen that in recent years we’ve seen employment gains instead of lower paid service sector jobs but we haven’t seen them at sort of the higher levels which will really play into the inflation picture.

So that’s something to look out for although you know four point one four percent that’s not going to be market moving the thing that can be market moving and has been over the several months is average hourly earnings.

Now this comes out in two different ways, it comes out on a month on month basis and a year on year basis the month on month basis; last month we saw an increase of plus point three percent.

We’re expecting that to come down a touch to plus point two percent now that will roughly be around last month’s plus two point seven percent annualized which would be about two point six percent annualized this time round.

Now that would indicate a pullback in wage growth from last month and that would sort of have the markets guessing a little bit because what we’ve been seeing a lot of is our fears of inflation picking up and in fact on Wednesday nights Fed statement, there was an FOMC decision rate decision, no change to interest rates but what they said in their statement was very interesting indeed and here it seems that the Fed is looking forward to inflation picking up.

Now certainly core PCE the feds preferred inflation measure came in earlier this week at plus one point nine percent that’s just about at the feds 2% target and now the Fed seems from what they were saying their statement that they’re quite happily see their target overshoot on inflation.

So we could see numbers coming in above 2% maybe up to 2.5% in future months or certainly going into the end of this year at the same time though the Fed seemed to downplay its outlook for GDP growth so we’ve got a situation here and this is one of the reasons why equity markets sold off last night and that is that we’ve got inflation picking up but maybe growth flattening down and that plays into fears that we might be getting into it as far as the US. is concerned stagflation which isn’t a great situation for the markets.

Coming back to the non-farm payroll number, now just bear in mind this is incredibly volatile.

We can see big get your big misses on both the upside the downside and not only that the previous couple of months data is also being revised and that can be revised up or down so look out for the headline figure.

If we have a big improvement on what’s expected then we can expect to see markets rally certainly the dollar will rally in the short term but those initial moves can be reversed very quickly once people have a look under the bonnet and look at closely at the other data so all to play for tomorrow.

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