Ok, it’s time for October jobs.
The setup here was already interesting and it’s made even more so by this week’s sharp rebound in equities catalyzed initially by some systematic re-risking, possible forced buying and, on Thursday and Friday, newfound optimism on trade.
On the data front, factory activity in the U.S. appears to be slowing (as it is in other parts of the world). This week’s ISM print was weaker than expected (6-month low, below), and the two-month decline in new orders was the largest since January of 2015.
That weakness might well suggest that trade frictions are starting to manifest themselves stateside and when you contrast that with rising price pressures, you end up wondering about stagflation, which was always the worry in the current environment assuming the sugar high from the stimulus finally wears off.
Importantly, this morning’s average hourly earnings numbers will be viewed in light of the most recent ECI numbers (out Wednesday). Although the headline ECI print was steady from last quarter, it’s still at a cycle high and drilling down, wages and salaries for private-sector employees rose 3.1% YoY last quarter, the quickest pace since 2008.
That’s the backdrop for Friday’s higher frequency earnings data. Barclays sees AHE rising 0.3% MoM and “a strong 3.2% YoY driven in part by base effects.” BofAML flags the same base effect tailwind in predicting a YoY rate of 3.0%, but the bank sees MoM printing just 0.1%. Goldman concurs with BofAML.
As a reminder, we’re still “30° of separation” from the typical 90° wage growth acceleration that occurs in late-stage recoveries when the Phillips curve snaps back to life.
On the October headline jobs print, Goldman is looking for 210k, reflecting “rebounding employment in North and South Carolina following Hurricane Florence, more than offsetting the likely drag from Hurricane Michael in the Florida panhandle and parts of Georgia.” Barclays and BofAML are at 200k, Credit Suisse at just 175k. This comes after a September report where the headline miss was more than compensated for by sharp upward revisions and a downtick in the unemployment rate to 3.7%.
Without further ado…
Expectations and priors
- Change in Nonfarm Payrolls, est. 200,000, prior 134,000
- Change in Private Payrolls, est. 195,000, prior 121,000
- Change in Manufact. Payrolls, est. 16,000, prior 18,000
- Unemployment Rate, est. 3.7%, prior 3.7%
- Underemployment Rate, prior 7.5%
- Average Hourly Earnings MoM, est. 0.2%, prior 0.3%
- Average Hourly Earnings YoY, est. 3.1%, prior 2.8%
- Average Weekly Hours All Employees, est. 34.5, prior 34.5
- Labor Force Participation Rate, est. 62.7%, prior 62.7%
- U.S. Oct. Nonfarm Payrolls Rose 250k; Unemp. Rate at 3.7%
- Nonfarm payrolls, net revisions, 0k from prior two months
- Participation rate 62.9% vs prior 62.7%
- Avg. hourly earnings 0.2% m/m, est. 0.2%, prior 0.3%
- Y/y 3.1%, prior 2.8% est. 3.1%
- Nonfarm private payrolls rose 246k vs prior 121k; est. 195k, range 75k-253k from 34 economists surveyed
- Manufacturing payrolls rose 32k after rising 18k in the prior month
- Unemployment rate 3.7% vs prior 3.7%; est. 3.7%, range 3.6%-3.8% from 75 economists surveyed
- Underemployment rate 7.4% vs prior 7.5%
- Change in household employment 600k vs prior 420k
So obviously that’s a big beat on the headline and that also looks like an impressive number on the manufacturing front, which could be a welcome relief considering the slowdown tipped by the ISM data this week.
As far as wage growth is concerned, I suppose that’s nothing to get too worked up about considering the jump above 3% (YoY) was expected, but what I would note is that more than a few desks thought the MoM print would miss, so that 0.2% figure seems to suggest wage growth is resilient.
This report is likely to be trotted out by the GOP ahead of the midterms as further evidence to support the claim that Trump’s policies have ushered in an economic renaissance in the U.S. I’d be willing to bet the President will tweet something about the data, if he hasn’t already.
Then again, this is just more ammo for Jerome Powell when it comes to justifying gradual rate hikes. Clearly, the labor market is on fire, and although the Phillips curve is still acting stubborn, the more of these five-decade-low unemployment rate prints we get, the more worried folks are likely to be that it’s just a matter of time before one of these AHE prints comes in screaming-hot.