vrijdag 7 juli 2017

June Payrolls Preview: With The Fed On Autopilot, You Can Skip This One

After a poor March jobs report, followed by an April scorcher, then another debacle in May, the June payrolls report due at 8:30am will be very much irrelevant, because as Citi pointed out earlier, the Fed is now data-independent and will keep hiking until financial conditions finally tighten (read: stocks drop). In other words, with the Fed on autopilot, feel free to skip this one, it hardly matters. For what it's worth, here are the consensus expectations for tomorrow's report:
*June Nonfarm Payrolls Exp. 179K vs May 138K
*Unemployment Rate Exp. 4.3% vs May 4.3%
*Average Hourly Earnings M/M Exp. 0.3%, vs May 0.2%; Y/Y Exp. 2.60%, vs May 2.50%
Courtesy of RanSquawk, here is a detailed breakdown of expectations:
# HEADLINE NFP: Analysts expect 179k nonfarm payrolls will be added to the US economy in June, against 138k added in May. Headline payroll growth has eased: The three-month rolling-average of the headline is running at a 121k clip, the slowest since July 2012, suggesting the pace of slack erosion is easing.
*Analysts at Barclays, who are more-or-less in line with the consensus view, write “factors influencing our forecast include initial claims, which continue to point to low rates of job separation, and the timing of the survey week in May.” The bank says claims have been pointing toward stronger payroll growth for some time too, but add that “in the other direction are calendar-day effects that we believe held back reported employment last month.”
# JOBLESS RATE: The unemployment rate is seen steady at 4.3%; the FOMC has forecast that the jobless rate will end-2017 at that level, while it recently cut its projection of NAIRU (non-accelerating inflation rate of unemployment) to between 4.5-4.8%; in June 2016, that estimate stood at between 4.7-5.0%. Given that the jobless rate is beneath the NAIRU estimate, many are once again focusing on the U6 measure of unemployment, which was running at 8.4% in May.
# WAGE GROWTH: Given that the labor market supposedly is tight, and the path of monetary policy is contingent on the progress of inflation, attention will be on the gauges of wage growth. The consensus view looks for average hourly earnings Y/Y to decrease to 2.6% from 2.5%, but the M/M measure is seen rising by 0.1ppts to 0.3% due to calendar effects.
*Analysts at CitiFX suggest that the USD is most sensitive to surprises on wages. But the bank notes that “a strong wage print would still not allay concerns on inflation where shelter, healthcare and apparel have represented a bigger drag than expected,” but add “a stronger wage print would strengthen conviction however that slack has been exhausted and potential growth is falling.”
*The market pricing of interest rate hikes is more pessimistic than the FOMC’s projections, with the former pricing in three hikes through 2019 versus the Fed’s forecast looking for seven. One theory explaining this discrepancy is that the Fed’s longer-term projection of the Federal Fund rate around 3% is too optimistic, and a lack of growth in the medium term may mean that the peak in the cycle is lower than its projection.
*Another part of this is that with weak inflationary pressures, there isn’t much reason for rates to jump higher. Accordingly, inflation data, as gauged by PCE, core PCE, CPI and wage growth, will be key in shaping expectations of inflation, and thus the trajectory of Fed policy....