Ok, well it’s time for the jobs report or, as I would have thought about it up until pancreatitis almost killed me in 2016, “the last data hurdle to clear before the drinking can start.”
Obviously, this comes at a rather delicate time, with stocks now taking their cues from the ongoing bond rout which has driven yields to near 2.80 and threatens to upend the equity rally that crescendoed last month with a truly absurd avalanche of inflows that seemed to signal retail euphoria. Here’s the situation:
Given that, the AHE print (which, given the focus on inflation, has been more important than the headline payrolls number for quite some time), will be even more closely watched than usual.
While there’s an argument to be made that given the sheer rapidity with which yields have recently risen, it would take a lot in terms of a beat to really move the needle here, it’s possible that the market will read any strength as another reason to sell stocks and bonds simultaneously – especially in light of the “hawkish” Fed statement.
“Any positive surprise in average hourly earnings could easily exacerbate the bearish steepening of the Treasury curve, so if we end up with a better-than-expected jobs number and higher-than-expected wage growth the rout in equities might in fact deepen further,” Max Kettner, a London-based cross-asset strategist at Commerzbank AG, told Bloomberg.
Here’s what Goldman was thinking headed in:
We estimate that nonfarm payrolls increased 205k in January, above consensus of +180k. Labor market fundamentals continue to appear solid, and we believe weather in the survey week improved sequentially from that of December, despite the “bomb cyclone” in the first week of the month. Additionally, labor supply constraints appear less binding in January, suggesting scope for solid seasonally adjusted payroll growth, in spite of tight labor markets. We forecast a stable unemployment rate of 4.1% in tomorrow’s report, as continuing claims fell only slightly between the survey periods. We estimate average hourly earnings increased 0.2% month-over-month and 2.6% year-over-year, as unfavorable calendar effects are partially offset by a modest expected boost from minimum wage hikes.
Ok, so with that as the setup, here are the numbers…
Estimates and priors
- Change in Nonfarm Payrolls, est. 180,000, prior 148,000
- Change in Private Payrolls, est. 181,410, prior 146,000
- Change in Manufact. Payrolls, est. 20,000, prior 25,000
- Unemployment Rate, est. 4.1%, prior 4.1%
- Underemployment Rate, prior 8.1%
- Average Hourly Earnings MoM, est. 0.2%, prior 0.3%
- Average Hourly Earnings YoY, est. 2.6%, prior 2.5%
- Average Weekly Hours All Employees, est. 34.5, prior 34.5
- U.S. Jan. Nonfarm Payrolls Rose 200k; Unemp. Rate at 4.1%
- Participation rate 62.7% vs prior 62.7%
- Avg. hourly earnings 0.3% m/m, est. 0.2%, prior 0.4%
- Y/y 2.9%, prior 2.7% est. 2.6%
That right there is the AHE beat folks were looking for:
- Nonfarm private payrolls rose 196k vs prior 166k; est. 181k, range 142k-239k from 32 economists surveyed
- Manufacturing payrolls rose 15k after rising 21k in the prior month; economists estimated 20k, range 10k to 30k from 19 economists surveyed
- Unemployment rate 4.1% vs prior 4.1%; est. 4.1%, range 3.9%-4.2% from 80 economists surveyed
- Underemployment rate 8.2% vs prior 8.1%
- Change in household employment 409k vs prior 104k