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PREVIEW: US Nonfarm Payrolls - Satisfactory Report To Greenlight Fed Taper?

By Newsquawk Voice Ltd (Ryan Anderson)Market OverviewOct 07, 2021 14:28
PREVIEW: US Nonfarm Payrolls - Satisfactory Report To Greenlight Fed Taper?
By Newsquawk Voice Ltd (Ryan Anderson)   |  Oct 07, 2021 14:28
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  • September’s jobs data, the last before the Fed’s November 3rd policy meeting, will be framed in the context of the central bank’s expected taper announcement, where a merely satisfactory report would likely to be enough for the FOMC to greenlight a November announcement to scale-back its USD 120bln/month asset purchases.
  • Labour market proxies have been constructive for the month: ADP’s gauge of payrolls surprised to the upside, although analysts continue to note that the direct relationship between the official data and the ADP’s gauge is tenuous, despite the gap being under 100k over the last three reports.
  • The number of initial jobless claims and continuing claims has eased back between the survey periods of the August and September jobs data, although analysts note that more recent releases have shown an uptick in claims potentially clouding the outlook.
  • The ISM business surveys have signalled employment growth in the month, with manufacturing employment rising into growth territory again, but services sector hiring cooled a little in the month, but remains expansionary; survey commentary continues to allude to a tight labour market.
  • The Bureau of Labor Statistics will release the September employment situation report at 13:30BST/08:30EDT on October 8th.


The September jobs report might have reduced relevance on trading conditions given that Fed officials have effectively confirmed that, barring a collapse in the jobs data, it is on course to announce a tapering of its asset purchases at the November 3rd meeting. Accordingly, trading risks may be skewed to the downside, rather than to the upside, where a significant payrolls miss may present obstacles to the Fed announcing its taper.

Additionally, it is worth being cognizant of how efforts in Washington to raise the debt ceiling are progressing; as yet, officials have not struck a deal, and are in the process of enacting stopgap legislation to allow funding into December; some analysts suggest that the Fed may be reticent to tighten policy in the face of potential default risks.


The consensus looks for 500k nonfarm payrolls to be added to the US economy in September (prev. 235k), which would be a cooler rate of growth than the three- and six-month average rate, though in line with the 12-month average (3-month average is 750k/month, the six-month average is 653k/month, and the 12-month average is 503k/month – that technically at least suggests an improving rate of payrolls growth in recent months). Aggregating the nonfarm payrolls data since March 2020, around 5.33mln Americans remain out of work relative to pre-pandemic levels.


The Unemployment Rate is expected at 5.1% (prev. 5.2%); Labour Force Participation previously at 61.7% vs 63.2% pre-pandemic; U6 measure of underemployment was previously at 8.8% vs 7.0% pre-pandemic; Employment-population ratio was previously 58.5% vs 61.1% pre-pandemic. These measures of slack are likely to provide more insight into how Fed officials are judging labour market progress, with many in recent months noting that they are closely watching the Underemployment Rate, Participation Rate, and the Employment-Population Ratio for a better handle on the level of slack that remains in the economy. Analysts would be encouraged the closer these get to pre-pandemic levels.


Average Hourly Earnings expected at +0.4% M/M (prev. +0.6%); Average Hourly Earnings expected at +4.6% Y/Y (prev. +4.3%); Average Workweek Hours expected at 34.7hrs (prev. 34.7hrs). 


The ADP National Employment Report showed 568k jobs added to the US economy in September, topping expectations for 428k, and a better pace than the prior 340k (revised down from 374k initially reported). ADP itself said that the labour market recovery continued to make progress despite the marked slowdown in the rate of job additions from the 748k pace seen in Q2. It also noted that Leisure & Hospitality remained one of the biggest beneficiaries to the recovery, though said that hiring was still heavily impacted by the trajectory of the pandemic, especially for small firms.

ADP thinks that the current bottlenecks in hiring will likely fade as the pandemic situation continues to improve, and that could set the stage for solid job gains in the months ahead.

On the data methodology, analysts continue to note that ADP's model incorporates much of the prior official payrolls data, other macroeconomic variables, as well as data from its own payrolls platform; "Payrolls were soft in August, thanks to the hit to the services sector from the Delta variant, and that weakness likely constrained ADP data," Pantheon Macroeconomics said. "The overshoot to consensus, therefore, suggests that the other inputs to ADP’s model were stronger than we expected, but none of the details are published, so we don’t know if the overshoot was model-driven or due to stronger employment data at ADP’s clients."


Initial jobless claims data for the week that coincides with the BLS jobs report survey window saw claims at around 351k – little changed from the 349k for the August jobs data survey window – where analysts said seasonal factors played a role in boosting the weekly data, while there may have been some lingering Hurricane Ida effects; the corresponding continuing claims data has fallen to 2.802mln in the September survey period vs 2.908mln in the August survey period. In aggregate, the data continues to point to declining trend, although in recent weeks the level of jobless claims has been picking up again.


The Services and Manufacturing ISM reports showed divergent trends in September, with the service sector employment sub-index easing a little to 53.0 from 53.7, signalling growth but at a slower rate, while the manufacturing employment sub-index rose back into expansionary territory, printing 50.2 from 49.0 prior.

On the manufacturing sector, ISM said companies were still struggling to meet labour-management plans, but noted some modest signs of progress compared to previous months: "Less than 5% of comments noted improvements regarding employment, compared to none in August," it said, "an overwhelming majority of panellists indicate their companies are hiring or attempting to hire," where around 85% of responses were about seeking additional staffing, while nearly half of the respondents expressed difficulty in filling positions, an increase from August. "The increasing frequency of comments on turnover rates and retirements continued a trend that began in August," ISM said.

Meanwhile, in the services sector, employment activity rose for a third straight month; respondents noted that employees were flocking to better-paying jobs and there was a lack of pipeline to replace these staff, while other respondents talked of labour shortages being experienced at all levels.

PREVIEW: US Nonfarm Payrolls - Satisfactory Report To Greenlight Fed Taper?

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PREVIEW: US Nonfarm Payrolls - Satisfactory Report To Greenlight Fed Taper?

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Sacdiyo Maxamuud
Sacdiyo Maxamuud Oct 09, 2021 11:37
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