US: Non-Farm Payrolls Preview - ING
Rob Carnell, Chief International Economist at ING, suggests that the US
April labour report is not expected to tell us anything new…but the
disconnect between labour and activity is puzzling – something has to
give, eventually.
Key Quotes
“If we can
take the data at face value, and that is not something we should take
for granted, then the first quarter of 2016 saw US activity slide to an
almost standstill. But despite that, labour market data has continued to
run quite well.
The ADP survey, probably the least unreliable
of all the monthly data, has raised concern with a softish 156,000
figure for April. And even though there are questions over the
seasonality of the April ADP data, which often seems to under-predict
the payrolls figures, adding this and the other data together, we are
generally happy to be a little below the consensus estimate for payrolls
of about 200,000 (INGF 190,000).
The labour force and
unemployment usually move together, but not one-for-one, and this can
give rise to swings that are essentially “noise”, but can add spice to
an otherwise dull labour report. We think that after some months of very
strong labour force growth, last month’s small dip will be followed by a
larger fall this month, and will probably exceed the decline in
unemployment that accompanies it. That could put some upwards pressure
on the unemployment rate, though we see the most likely outcome for the
unemployment rate as remaining unchanged at 5.0%.
The final
aspect of the labour report that is worth watching, is wages. The
headline wages measure – average hourly wages growth – has been drifting
off its recent highs, despite a reasonable 0.3% MoM gain in March. A
similar monthly increase in April would take the year-on-year rate of
wages growth back to 2.4% YoY – the right direction, but hardly changing
the story of soft wages. Meanwhile, high frequency indicators are
moving in different directions, with the Atlanta Fed measure of median
wages (3-month moving average) way up at over 3%, but the wages and
salaries component of the employment cost index (ECI) flat at just over
2.0%. We have no strong views on this, except to say our slightly
increased forecast of 2.4% wages (2.3% in March) is in line with
consensus, and made with very low conviction.
Assuming we get all
of the above, or something like that, we think markets will be largely
unmoved. This data does not really change the picture for the Federal
Reserve. If the labour market stays reasonably firm, then the Fed is
still lacking an endorsement from the activity data for its next hike.
If it softens, then a June rate hike will look improbable, despite some
comments from Fed officials that markets are underestimating the
likelihood of a June hike. We still prefer 3Q16 for the next hike.”
