NFP – Comfortable assumption for further big Payroll climb


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By: Andria Pichidi

Recent US economic reports have been mixed, but the bulk of the surprises have been on the high side. It’s an important end of the week where the economic releases will provide the latest read on the recovery. With July durable goods, trade, inventories, and most of the housing data in hand, we’re able to better calibrate Q3 GDP.

The various July reports prompted a further hike in the wider forecast to 32.5%, following what we now expect that it will be a boost in Q2 GDP growth to -31.6% from -31.7%. And markets now peg 2020 GDP growth at -3.6% y/y and -2.3% Q4/Q4, much better than the FOMC’s current central tendency of -5.5% to -7.6%.

However, the August employment report tomorrow is the big dog this week.

The August Nonfarm Payroll is anticipated to shows a gain at 1,800k, as most measures of output continued to climb through August. Initial claims have slowly tightened, and a big -2,416k continuing claims plunge had been seen between the July and August BLS survey weeks that is the largest on record.

Meanwhile, the jobless rate to fall to 10.0% from 10.2%, alongside a 1.3% August hours-worked increase with a 34.5 workweek. Supporting the forecast has been the ongoing declines in continuing claims, and the resumption of the downtrend in initial jobless claims, although there is some risk given the 133k uptick in during the BLS survey week. The manufacturing ISM has shown continued gains from the near-record low of 27.5 in April, though the improvement in services employment stalled this month.

The hourly earnings should fall -0.7% after July’s 0.2% rise, as the measure gives back more of the 4.7% April pop with the shift in the composition of jobs back toward lower-paid workers.

Lastly, yesterday’s 428k August ADP payroll rise did not really affect the forecasts for NFP release. The ADP gains have a massively undershot improvement in BLS payrolls and other labor market indicators since the growth rebound began. The forecasts remain comfortable on a further big August payroll climb that substantially beats the ADP gain. Note that the change in the seasonal adjustment process for initial and continuing claims on Thursday will likely prompt big downward revisions to recent levels for both series toward their lower NSA levels since additive seasonal factors will be smaller than multiplicative ones when the levels are high. This may prompt boosts in some market payroll estimates.

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