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
“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.”