The Day Ahead: Markets Hesitant Ahead of Employment Data
Markets are edging lower ahead of the 8:30 release of Nonfarm Payrolls. A lot is hanging on this report as many forecasts for the economy are dependent on the direction of the labor market. Many look for signs of stabilization after last month’s downside surprise, but signs of a recovery have been far from evident in the weekly Jobless Claims numbers or the ADP private employment report.
Key Releases Today:
8:30 ― The biggest data release each month is the Nonfarm Payrolls / Employment Situation report, which this month should lift the unemployment rate up two-tenths to 9.6% ― the highest rate in 26 years. Some analysts believe the risk is higher due to students entering the job market, which could quickly push the rate closer to 10%.
Last month’s drop in payrolls was 345,000 ― significantly lower than expectations ― and since that time analysts have come to believe that the months of half-million job losses are behind us.
However, the ADP employment report published yesterday put some risk to the downside when it suggested that 473,000 private-sector jobs were shed in June.
Markets more or less shrugged off that report, and it would appear forecasters did as well. The consensus looks for 325,000 jobs to have vanished this month, with forecasts ranging between 225,000 and 435,000.
“The expected decline would take total job cuts in the recession to 6.3 million (or 4.6%), marking the worst percentage loss during a recession since 1949,” noted Michael Gregory from BMO Capital Markets.
Explaining the importance of today’s report, HFE’s chief U.S. economist Ian Shepherdson said: “The markets’ collective view of the state of the U.S. economy is driven, above all else, by the payroll numbers. Other data can point unanimously up, down, or sideways, but experience shows that the markets won’t be convinced until the message is validated by the employment data.”
8:30 ― Jobless claims will receive significantly less attention this week due to its rare simultaneous release with Nonfarm Payrolls, but if the two studies report consistent data than this weekly report could bolster near-term forecasts.
Initial claims have been above the 600k mark for 21 straight weeks, and in the final week of June another 615k Americans are expected to have filed for first-time employment benefits. Meanwhile, continuing claims rose to 6.738 million in the last report, disappointing those hoping for a back-to-back moderation.
10:00 ― Factory Orders, an expanded look at durable and non-durable goods orders, are expected to advance 0.9% in May following a 0.7% gain in April.