US nonfarm payrolls expected to have added around 160k jobs – BBH

Research Team at BBH, suggests that the US employment data is the main focus ahead of the weekend with nonfarm payrolls are expected to have added around 160k jobs. 

Key Quotes

“That would be the second consecutive month below 200k.  In both 2014 and 2015, there was one such back-to-back sub-200k reading (Jan-Feb 2014 and Aug-Sept 2015).  Moreover, the 40k strike at Verizon likely depressed the report. 

At the same time, economists and policymakers general expect job growth to slow as full employment is reached.  Weekly jobs claims are elevated, and the four-week moving average is about 20k above the cyclical low set in April. 

Jobs growth has ratcheted down.  The three-month moving average of nonfarm payrolls is near 200k, down from a six-month average of 220k.  The details of the report, including hours, worked, and average hourly earnings, are expected to show little change.  Due to rounding, there is a chance that the unemployment rate ticks down to 4.9% from 5.0%. 

We suspect there is some downside risks with today's US employment report.  It appears that the economy enjoyed a strong rebound in March-April and may have moderated in May.  That said, as of June 1, the Atlanta Fed GDPNow is tracking 2.5% growth in Q2.   To offset the risks associated with the UK referendum eight days after the FOMC meeting, we think among the necessary developments is an unambiguously strong employment report, with more upside pressure on wages evident.  We do not expect such a threshold will be met.

If this assessment is correct, there is some downside risk to the dollar as the market shifts the modest expectations from June to July.   As we have noted, the main problem with a July hike is that there is no press conference scheduled afterwards.  This is an operational challenge but one that is surmountable.  A move in July would also secure the Fed more degrees of freedom, as it would underscore the claim that all meetings can be live, not just the quarterly ones followed by a scheduled press conference.”