What To Expect From Tomorrow’s Jobs Report And One Troubling Chart
By Tyler Durden
Remember all those hyperbolic warnings over the years that “this is the most important jobs report” ever? Well, the one due out tomorrow may not be that, but it certainly is one of the most important ones in the past year, and one that will certainly have an impact if not on the Fed’s future actions then certainly on the market’s (once again erroneous) expectations of what Yellen may do, especially if it is a +/- 60,000 outlier from the consensus estimate of 180,000.
Recall last month’s “shocking” jobs print, when only 35,000 new jobs were created, the lowest number since September 2010?
Well, that one print was sufficient to convince the market there would be no more rate hikes in 2016 and most of 2017. A few weeks later, first the capitulatory June Yellen press conference and shortly after the just as “shocking” Brexit, effectively killed the rate hike cycle, with the market now pricing in one full rate hike (that is 0.25bps) all the way in 2018. As LIesman raged, “The Fed Is As Close To Capitulation As I’ve Ever Seen Them.”
But maybe there is some hope still. If so, it will be revealed in tomorrow’s payrolls report. As Bloomberg says, “the June jobs report will take on even more importance than usual. Economists and policy makers will use it to determine whether the strongest part of the economy slowed sharply even before concerns over global growth intensified, or if the labor market was merely hit by a temporary soft patch.” Ignoring that jobs are among the most lagging economic indicators known, the general (confused) consensus about what payrolls indicate suggests an outsized market response may be forthcoming.
“There is a potential for a big reassessment on Friday for the outlook,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics Ltd. in Valhalla, New York. “Given how much views changed after the last report, I get the sense that the anticipation level going into this one is unusually high.”
Wall Street consensus expects 180,000 jobs to be added in June following the abysmal 35,000 in May. One benefit will come from the return to work of striking employees at Verizon. 35,100 Verizon employees ended their almost seven-week work stoppage on May 31. Once the strikers are factored out, “that does imply some net slowing of the trend,” O’Sullivan said. Still, that rate of hiring “remains more than strong enough to keep the unemployment rate trending down.”
Another “good” datapoint will be unemployment rate, expected to rise to 4.8% after falling to a more than eight-year low of 4.7% in May. This however was due to an exodus of workers from the labor force, as the participation rate resumed its plunge.
Earnings will also be closedly watched, with average hourly earnings expected to rise 0.2% in June from the month before and 2.7% Y/Y. However, if that again comes at the expense of yet another decline in hours worked it will be a clear stagflationary sign for the economy. …read more
Source: What To Expect From Tomorrow’s Jobs Report And One Troubling Chart
