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January NFP: Preview & FX Trading Strategy - BofA Merrill NFP Preview:
Employment growth likely slowed in January with nonfarm payrolls rising by 170,000. This follows a robust 2015 finish, as jobs increased by an average of 284,000 in the final three months. Exceptionally favorable weather, particularly in December, provided a boost to the data. Our models suggest that there will be some payback in the following month and an even larger payback two months late. The major snowstorm that hit the East Coast won’t play a role in the January figures since it was after the survey week; it could matter for February, however. Outside of the weather, we see reasons for some weakening in the trend given the modest uptick in jobless claims and a minor drop in the Conference Board’s labor market differential.
On a sector basis, we think mining continued to shed jobs amid depreciating oil prices, and manufacturing was stagnant. Construction is particularly sensitive to weather and ramped up in 4Q, so there is a high risk of weakening. On the flip side, services sector jobs growth likely remained solid. We also look for government to rise by 5,000, which implies private sector job growth of 165,000.
We expect the unemployment rate to remain unchanged at 5.0%. Meanwhile, average hourly earnings should rise 0.3% mom with upside risk, following no gain in December. The base effects reverse between December and January. They were favorable in December, boosting the yoy rate to 2.5%, but even with a 0.3% mom increase this month, we would see deceleration to 2.2% yoy.
FX Trading Strategy: The inability of the dollar to rally on last month’s stellar 292k report leaves asymmetric risks for the USD (similar to rates) into this week’s NFP report, particularly with our below consensus call of 170k. Indeed, despite the largest NFP surprise since 2012, USD/JPY sold off by nearly a percent, something that hasn’t happened since April 2014 (Chart 1). As we have noted, this implies the market will continue to question the Fed’s ability to hike the 4 times the dots imply with the risks emanating from China (and lower commodity prices) front and center in investors’ minds. While the 6mma of payrolls growth is an above-trend 229k (enough to justify further hikes in the Fed’s mind), even a positive surprise is unlikely to assuage investors’ overall concerns about the U.S. economy.
Therefore, we see USD price action limited. However, a weak report, even if it leaves the trend of jobs growth above 200k, will likely weigh on risk sentiment. We favor being short the USD against perceived safe-haven currencies, like EUR and JPY, which according to our regression analysis have the most consistent responses to NFP surprises.
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Here's your quick guide to Friday's jobs report Get ready for jobs day.
On Friday at 8:30 a.m. ET, the Bureau of Labor Statistics will release the January jobs report.
Via Bloomberg, here's what Wall Street is expecting:
Last month, the US labor market was on fire as the economy added 292,000 jobs. But after the rocky month for stocks, less-than-stellar corporate profits, and continued lower oil prices, many economists aren't expecting a repeat slam dunk in January.
"While the pace of employment gains remains about the level needed to absorb slack in the labor market, January is expected to be the weakest month since last September, which incidentally preceded the Fed's decision to forgo hiking rates," wrote TD Securities' David Tulk. "As domestic momentum slows, we expect the pace of job growth to reflect some of the strains emerging in the economy."
"Labor market indicators were weaker in January, with declines in the employment components of both the ISM manufacturing and non-manufacturing surveys and rising jobless claims," wrote Goldman Sachs' John Hatzius.
Notably, as Business Insider's Akin Oyedele observed, although Goldman Sachs usually outlines reasons why a jobs report could be strong, neutral, or weak, their latest preview did not include anything on why the report might be great — which further suggests that analysts aren't feeling so great about Friday's report.
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Preview: US Jobs Report (Feb) - Goldman Sachs We expect a 195k gain in nonfarm payroll employment in February, in line withn consensus expectations—and a slight downward revision from our forecast at the start of the week.
Labor market indicators were mixed in February, with lower jobless claims and a rise in the ISM manufacturing employment component, but declines in the employment components of most nonmanufacturing surveys, including the ISM services survey. We expect some rebound from the large declines last month in employment in the private education, temporary help services, and couriers and messengers sectors.
The unemployment rate is likely to remain unchanged at 4.9%. Average hourlyn earnings are likely to rise just 0.1% month-over-month, due mostly to calendar effects.
February 2016 US non farm payrolls 242k vs 190k exp Details from the February 2016 US non farm payrolls data report 4 March 2016
The headline jump and that drop in the weekly hours (I might have got a little turned around on the work week hours. A rise alongside a gain in wages usually signals a tightening, while the opposite can mean that there's greater capacity), is what's helping lessen the drop in wages. Add the participation and U6 into the bullish report sentiment too.
It's a good report but not earth shattering. The headline number takes us back into the 200's and where we've been consistently. What will keep USD buyers and rate watchers happy is that more people now officially looking for work and the U6 is down also.
I might have got a little turned around on the work week hours. A rise alongside a gain in wages usually signals a tightening, while the opposite can mean that there greater capacity
Anybody still believes that nfp data is real?
Preview: March NFP
BofAML: The March employment report likely showed another strong month for the labor market. We anticipate a healthy 190,000 gain in nonfarm payrolls, with the private sector contributing 185,000. Job cuts likely continued in the mining sector given low oil prices. Meanwhile, early signs from the manufacturing sector point to a rebound in activity this month, so we may see a pick-up in hiring after the decline in February. Elsewhere, construction and services likely saw further healthy gains. We expect the unemployment rate to hold in at 4.9%. An implicit assumption in our forecast is that the labor force participation rate flattens out or continues its uptrend since September. Considering how broad-based the improvement in the participation rate has been, it is difficult to attribute it to special factors. But if we do see a reversal of the recent gains, there is a risk that the unemployment rate heads lower to 4.8%. On wages, we think average hourly earnings posted a nice 0.3% mom gain, reversing the 0.1% decline previously. This would leave the yoy rate unchanged at 2.2%
Nordea: We expect a 200k gain in nonfarm payrolls in March after the surprisingly strong 242k rise in February, consistent with a continued healthy labour market improvement. Our forecast is below the 228k average gain over the past three months but close to the 205k consensus forecast.We expect the unemployment rate to remain at 4.9%, the 8-year low reached in January just above the new 4.8% median FOMC projection of the NAIRU. The consensus estimate is also 4.9%. Even a rise to 5% would be good news for the Fed if explained by a further rise in the labour force participation rate. We think, however, that the labour force participation rate remained at 62.9% in March after three straight increases.
SEB: We take the lowside on this one and forecast a180k on the headline, 170k on private employment, 0.1% on average hourly earnings and 4.9% on the unemployment rate.
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Preview: Can the Non-Farm Payrolls give us a lead for the month ahead? A look at the potential impact of today's US jobs and wages report 1 April For the intra-day traders we can get excited about the knee-jerk reaction which we'll get in obligatory fashion given the hype and bluster afforded to these occasions. We'll get the up and down, or down and up, depending on the actual data ( no crystal ball or runes to hand as usual) and that will provide opportunity. As I've said many times recently though don't get greedy. Even if the headline and/or detail is very bearish or bullish that doesn't mean the market is going to run too far right now.
For the longer-term traders it's not such an easy call with Yellen's recent dovish tones dampening expectations of rate hikes any time soon, despite others on the FOMC still in hawkish mode. It's not just all about the US and its economy. Yellen made it clear that global uncertainties are high up their priority list and those aren't going away any time soon even if today's data excites the bulls.
Here's the expectations:
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March NFP: Quick Take Output isn’t growing that quickly in the US economy, but don’t tell that to employers, who just keep on hiring. March saw an on-trend again of 215K with no material revisions, and the one-tick rise in the jobless rate to 5.0% only reflected higher participation, as the household survey also registered strong job gains. Wages, which disappointed last month, were revised higher to a 2.3% growth rate in February, and held that pace in March on a decent 0.3% bounce back in monthly gains. Factories continued to pare back workers in line with recent softness in the goods sector, but services job gains were broadly based. Aggregate working hours grew nearly at a 2% annualized pace in Q1, so this was another quarter with negative productivity if there are no revisions to the monthly growth figures that contribute to GDP. We see the healthy hiring trend as a sign that businesses expect growth to pick up in the coming quarter.
Overall, not a big surprise vs. consensus, but a refreshing change from recent disappointments, and healthy enough to support a June rate hike if early Q2 GDP indicators look better.
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