What's expected:
- Consensus estimate +175K (LBBW at the low at +70K, Bank of American at the high at +225K)
- June +206K vs +190K expected
- Private +148K estimate vs +136K prior
- Unemployment rate consensus estimate: 4.1% vs 4.1% prior
- Participation rate: 62.6% prior
- Prior underemployment U6 7.4%
- Avg hourly earnings y/y exp +3.7% y/y vs +3.9% prior
- Avg hourly earnings m/m exp +0.3% vs +0.3% prior
- Avg weekly hours exp 34.3 vs 34.3 prior
July jobs so far:
- ADP report +122K vs +150K expected and +155K prior
- ISM services employment not yet released
- ISM manufacturing employment 43.4 vs 49.3 prior (lowest since 2020)
- Challenger job cuts 48.8K vs 64.7K prior
- Philly employment +15.2 vs -2.5 prior (highest in nearly 2 years)
- Empire employment -7.9 vs -8.7 prior
- Initial jobless claims survey week 245K vs 228.5K expected
The initial jobless claims number marked the highest since August 2023 and the highest print during NFP survey week since June 2023. However, the numbers may have been skewed to the upside by Hurricane Beryl; that storm though could also impact the non-farm payrolls report.
Seasonally it's a mixed picture with headline payrolls evenly split between beats and misses but the upside surprises have averaged 84K while the downside have averaged 56K. The unemployment rate tends to come in lower with 42% on the reads compared to 31% on the upside and 27% on consensus, according to BMO.
I think the economic backdrop is critical to consider with this report. The bond market has seen a major flight to safety recently with two-year yields plunging to 4.18% from 4.75% at the time of the last jobs report, including a 22 bps decline in the past week. This argues that the Fed is falling behind the curve.
I think that trade will ultimately prove to be the right one but it's moved very aggressively with minimal economic data to back it up. With that, the risk is that we get a decent report (or even in-line) and we get a sharp selloff in bonds and rally in the US dollar.
Here is BMO's take:
"It’s tempting to suggest that weakness in the BLS data will be required to justify 10-year yields below 4.0% as next week’s refunding auctions quickly approach. However, as long as there isn’t a material acceleration in job creation, we expect that any post-payrolls selloff will be short-lived and eventually resolve with a resumption of the bond bullishness that has its origins elsewhere. Said differently, the BLS report won’t change the market’s perception of the cooling inflation data, escalating turmoil in the Middle East, BoE/ECB/SNB/BoC cuts, or the prospects for the strain on the bottom quartile of consumers to spread to sentiment throughout the economy. It goes without saying that NFP represents the biggest near-term event risk even if it is decidedly one-sided as investors will be quick to dismiss strength as status quo while a sharp slowdown could be interpreted as a gamechanger for the Fed."
