Quite why UK investors are (apparently) obsessed with US jobs data is hard to fathom but especially so at the current time.
Nevertheless, that’s where most of the market’s attention will be on Friday afternoon
Private payrolls processing firm ADP revealed yesterday that the private sector added 692,000 jobs in June, above the consensus forecast of 600,000, which suggests that economists’ best guess of what the non-farm payrolls additions will be might be a bit on the light side.
“The signal for Friday’s official numbers is unclear,” said Ian Shepherdson, the chief economist at Pantheon Macroeconomics.
“ADP’s measure undershot the official payroll data for most of the pandemic, but suddenly overshot in April and May, by 524K and 486K respectively. This abrupt swing likely was due to ADP’s model overweighting the strength of macroeconomic variables like retail sales and jobless claims while ignoring the shortage of labour supply. Payroll growth has not kept pace with demand because the participation rate remains depressed.
“If this new pattern persists in June, Friday’s print will be only about 200K but that would be wildly at odds with the clear message from the Homebase data - which fit the official data better than they fit ADP - suggesting that increasing labour supply allowed payroll growth to jump to about 1mln. We’re sticking with that forecast for now, but the truth is that the range of plausible outcomes on Friday is very wide,” Shepherdson admitted.
In other words, it’s what the Americans call a crapshoot.
The US employment ratio (ER) is tipped by John Vail, Nikko AM’s chief global strategist, to surge to its 2010-2013 average of 58.5%.
"If payrolls and the ER surprise to the upside in June, especially if the two prior months are revised significantly upward, then the Fed may have deep tapering discussions even before the July FOMC [interest rate-setting] meeting and indicate at it an imminent decision on such, with the possibility of changing the composition of QE away from MBS right away.
"One little-noticed but important factor is that manufacturing capacity utilisation, which is measured by the Fed, has, despite the auto shutdowns, attained its pre-pandemic level, thus indicating that the economy is operating at a high level and should not be pushed too much further,” Vail suggested.
Significant announcements expected
Economic data: US non-farm payrolls