US NFP Preview: 9 Major Banks Expectations from the April Release
We are closing in on the April’s release of US Non-Farm Payrolls data.
The following are the expectations as forecasted by the economists and
researchers of 9 major banks. After posting a stronger than expected
215k in March, all the 9 major banks are expecting April NFP to
suggests a step down in net hiring and print a number in between 175K to
223K while the unemployment rate is expected to tick down to 4.9% from
its last print of 5%.
We expect the Bureau of Labor Statistics (BLS) to report that US nonfarm payrolls increased by a net 175k jobs in April (Consensus: 200k), suggesting a step down in net hiring from 215k in March. We have revised down our forecast by 30k from our original estimate of 205k, as the April ADP net private payrolls change came in well below market expectations, at 156k (Consensus: 195k, Nomura: 200k). Consequently, we revised down our private payrolls forecast by the same magnitude, to 170k (Consensus: 195k) from 200k previously. With respect to the rest of the data, we expect the unemployment rate to tick down to 4.9% (Consensus: 4.9%) on a rounded basis, as we believe the increase reported for March to be temporary. Last, we expect that average hourly earnings grew by 0.30% m-o-m (2.4% y-o-y) (Consensus: 0.3% m-o-m, 2.4% y-o-y) in April, following a 0.28% m-o-m increase in March.
The current consensus forecast is for a 200k print this afternoon although it’s interesting to see that the range of forecasts are from as low as 160k to as high as 315k. Our US economists are sitting at the lower end of that range and are forecasting for a below-market 175k gain. As usual we’ll also receive the other important details of the April employment report including average hourly earnings (market expecting +0.3% mom and +2.4% yoy), labour force participation rate (expected to be 63.0%) and the unemployment rate (expected to nudge down one-tenth to 4.9%).
Average hourly earnings are expected to accelerate in the data released today from 2.3% Y/Y to 2.4%. The advance of the dollar ahead of today’s NFP report suggests the market sees greater risk of another decent jobs report. Despite the surprise slowdown in ADP employment growth reported on Wednesday, our own NFP model is estimating a 223k gain. We would expect the dollar to advance further on the back of that scale of NFP increase.
It is all about the US non-farm payrolls. Despite global headwinds, the underlying trend in the US labour market is relatively strong, which should be reflected in April’s payrolls seen at 200k. The unemployment rate is expected to edge lower to 4.9% in April from 5.0% in March. Another encouraging signal would be a rise in average hourly earnings seen at 2.4% y/y, from 2.3% y/y in March. Following lower than anticipated ADP figures and higher initial claims market expectations are likely to be lower than the surveys indicate. That said, the markets may need to see a much stronger payrolls to start pricing in a hike in June.
We look for non-farm payrolls in line with the recent trend but there is some downside risk after April's ADP employment was the weakest since 2013. The ADP figure is not always the best indicator for non-farm payrolls and job growth can fluctuate much from month to month, nevertheless a confirmation of the weakness is something that would worry the Fed in our view. If employment continues to rise at a solid pace, we believe the Fed has its eyes on things other than employment growth. Due to the Fed's increasing focus on inflation, we keep an eye on average hourly earnings, which we estimate rose 0.25% m/m in April, implying an unchanged wage inflation rate at 2.3% y/y.
Consensus for US Apr non-farm payrolls is 200k, after 215k in Mar and 245k in Feb. On the positive side is the 5 week gap between survey weeks, very low jobless claims and a bounce in the services ISM employment index. Potential negative influences include the strikingly weak 156k reading on ADP private payrolls and the mild winter, which might mean Feb and Mar were boosted by hiring in retail and construction being pulled forward from Apr-May. The separately calculated unemployment rate is expected to tick down from 5.0% to 4.9%, though consensus was also for 4.9% last month. The employment report is always important to the Fed and usually produces at least passing volatility. But since there is another report before the FOMC’s 15 June meeting, the April data doesn’t seem vital for USD.
But 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). We see the most likely outcome for the unemployment rate as remaining unchanged at 5.0%. 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.
As domestic momentum continues to slow, the fallout is expected to begin showing up in the labor market, with the pace of employment growth slowing to 188K in April. This will represent a step down from the relatively brisk 215K pace the month before and comes despite the improvement seen in weekly jobless claims and US household’s labor market sentiment. The unemployment rate should remain unchanged at 5.0% as a further influx into the labor force offsets the gains in household employment. Wage growth should be relatively buoyant, posting a solid 0.4% m/m gain due to favorable calendar effects, pushing the annual pace of average hourly earnings growth to 2.5% y/y from 2.3% y/y.
Focus today is firmly on the US Jobs report at 13:30, with the headline Non-Farm Payroll job creation number a continued focus. Markets will be looking for a 200k+ release to keep the Fed on track for a June rate rise, while the unemployment rate and participation rate will continue to garner attention. Analysts will also be closely watching out for the rate of wage growth as markets look for continued signs of inflationary pressures is the world's biggest economy.
For all those curious readers click on the below mentioned title as we have an additional read for your from our in house Analyst Ross Burland titled “Nonfarm Payrolls - "Fuhgeddabouit" !”