Nonfarm Nonfarm Nonfarm

More support to tapering expectations – U.S. jobs report preview

Macro
CD
Christopher Dembik

Head of Macro Analysis

Summary:  The consensus economists look for a 900k gain in non-farm payrolls versus prior 850k, a decline in unemployment to 5.7% versus prior 5.9% and a pick-up in average earnings growth to 3.8% yoy in July. Even if tapering is not immediately around the corner, it is getting clearer that the Fed is preparing for it. A good July job report would further fuel tapering expectations.


There will be a strong focus on tomorrow’s official employment data given the emphasis from Fed chair Jerome Powell and company on upcoming job reports and its implication for taper timing. This is also the last job report ahead of Powell’s speech at Jackson Hole later in August where he may drop hints of what is coming next in terms of monetary policy.

Yesterday, the July ADP Employment report was out at 330k – sharply below the consensus of 650k. The big miss raised concerns about growth prospects. But we believe investors should not overreact to the data. Since the outbreak, the ADP Employment report has had trouble tracking the jobs report as hiring and layoffs have gyrated wildly.

We expect a good print to be released tomorrow. The consensus looks for a 900k gain in non-farm payrolls versus prior 850k. In turn, that would bring the unemployment rate down to a post-pandemic low of 5.7%.  Some economists even forecast the non-farm payrolls to rise by +1m – which would be the fastest pace of job growth since last August if confirmed. As a note of caution, July is historically a seasonally weak month for hiring. But in these extraordinary times, everything can happen.

On the downside, we continue to see little scope for a major trend reversal in labour force participation. It is expected to hover around 61%. Labor scarcities reflects both cyclical factors (lingering impacts of enhanced unemployment benefits, fears over going back to work and becoming sick and school closures) and structural factors (the negative impact of an ageing population). This is well-monitored by the FOMC. But it is unlikely to have a major incidence on tapering timing, in our view.

Given data volatility and the unusual economic circumstances, it is not surprising senior Fed officials have very different views over tapering and the outlook for the U.S. economy. But this will lead to more market volatility, at least in the near term. In recent days, chair Powell, the influential vice-chair Richard Clarida and the newest Governor Christopher Waller all have sent very different messages to the market. Powell mentioned that « the labor market has a way to go » and that the unemployment rate of 5.9% understates the shortfall in employment. This suggests that Powell is ready to wait a bit longer before moving forward with tapering. Yesterday, Clarida indicated that rates could rise in 2023, thereby confirming the FOMC is widely divided over rate hike timing as well. According to the quarterly projections released at the FOMC meeting of 15-16 June, 13 out of 18 Fed officials are now considering a rate hike in 2023 and seven next year. Finally, Waller suggested that if July and August job growth was as strong as June (850k), he can envision tapering beginning in October and it could be faster than the $10bn a month seen previously.

All in all, this is bright clear we are getting closer every week to the tapering announcement. But we first need to navigate into more uncertainty, at least in the short term. The data-driven U.S. central bank needs more weeks, perhaps months, before it can make up its mind on the exact tapering timing. Be ready for a roller coaster market.

Disclaimer

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.