Now that the Fed has commenced its rate hike cycle, the jobs report suddenly takes on far less significance because only a massively "outlier" print will have an impact on Fed thinking, thinking which so far appears undented despite a raging manufacturing recession across the US. This means that the December jobs could be the "most important ever" only in retrospect, with either a huge miss (think < 100,000) or huge beat (> 275,000) having a material impact at a time when algos are much more focused on China scrambling to prevent its economy - and market - crashing, hard.
Indeed, as Citi points out, this is "the least important payrolls report in a while"
Almost every Nonfarm Payroll release last year felt like the biggest nonfarm payrolls release of all time. Today’s release, on the other hand, feels close to irrelevant. Nonfarm Payrolls is a lagging indicator at the best of times and today I think any market reaction will reverse extremely quickly. US rates and the Fed’s pace of hikes will be ruled by the global environment and SPX moves, not the pace of US jobs growth. Fade it either way, especially if the number is strong.
In any case, with less than 30 minutes until the jobs report here is what the market expects.
- US Change in Nonfarm Payrolls (Dec) M/M Exp. 200K (Low 135K, High 240K), Prey. 211K, Oct. 271K
- US Unemployment Rate (Dec) M/M Exp. 5.0% (Low 4.9%, High 5.2%), Prey. 5.0%, Oct. 5.0%
- US Average Hourly Earnings (Dec) M/M Exp. 0.2% (Low 0.0%, High 0.3%), Prey. 0.2%, Oct. 0.4%
Here is the breakdown by bank:
- UBS (highest): 230k
- JPM: 229k
- Goldman: 215k
- BofA: 220k
- JPM: 215k
- DB: 160k
- Bank of China: 145k
Some additional thoughts from RanSquawk
Ahead of last month's FOMC decision to increase rates by 25bps for the first time in almost a decade, the year ended in a strong fashion with the previous NFP reading beating expectations at 211 K. In terms of the other releases, unemployment is expected to remain at 5.0% which will maintain the reading at its lowest level since Apr'08. Of note, some are attributing the unchanged employment reading is due to the labour force participation rate rising from 62.4% to 62.5%. The recent rhetoric from Fed members has stated that they have met their mandate on the labour market and now need to focus on the inflation target, therefore wage inflation data is in ever increasing focus by the FOMC. As such, average hourly earnings will be a key indicator upon release with the monthly figure expected at 0.2% in-line with the previous release. Additionally, the Y/Y figure is expected to print at 2.8% which would show the largest gain since Jun'09. In the latest monetary policy statement, the FOMC stated that they expect labour market indicators to continue to strengthen, and that risks to the outlook remain balanced.
In terms of the recent labour data, Wednesday's ADP release strongly exceeded expectations coming in at 257K vs. Exp. 198K (Prey. 217K) with a slight downward revision to 211K. This week's ISM non-manufacturing composite employment component printed a marginal beat on expectations at 55.7 vs. Exp. 55.0 even as the headline printed a slight miss. However, Monday saw the ISM manufacturing release which printed the lowest reading since Jun'09 while the employment component missed at 48.1 vs. Exp. 50.0 (Prev. 51.3). Of note, the latest ISM surveys illustrate the continuing divergence between manufacturing and non-manufacturing figures, as the manufacturing industry continues to come under pressure, which could suggest that we will continue to see that divergence within this report.
Some analysts have highlighted that the warmer weather in the final month of 2015 could see a stronger number than is typical for this time of year. This is due to the potential for some outperformance in sectors such as Construction, Leisure, Hospitality and Retail. If the figure were to come in line with expectations that would total job gains of around 2.5mln in 2015 vs. 2014 which printed job growth of 3.1 min. Recent analyst commentary has stated that some employers are not currently reducing employee numbers due to continued demand for their products while the recent data has indicated that the US labour market remains in a healthy state. Furthermore, some have highlighted that the relationship between the recent jobless claims and NFP's has diminished somewhat, so may not be a reliable indicator for Friday's release.
Market Reaction
Following the FOMC minutes on Wednesday which were interpreted as marginally dovish and had little sustained impact on the market, participants are looking towards this figure as a key indicator due to the Fed's data dependency yet focus as previously stated could be on the wage inflation components. As ever with the release, there is likely to be heightened volatility, a result that is largely in-line with no large outliers could invoke a marginally hawkish response due to the fact that it provides a strong basis for 2016 and as such we are likely to see USD strength alongside higher yields in UST's. Whereas, large negative outliers could create a cautious response from participants as they may believe the Fed could look to reduce their estimates for how many rate hikes they are planning this year.
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Finally, for our trivia contest, instead of guessing the headline number, try to guess how many waiters and bartenders, part-time of course, were added in December.