Friday preview: US non-farm payrolls in the spotlight

The US non-farm payrolls report will be closely eyed on Friday as the Federal Reserve considers the timing of its next interest rate hike.

Economists expect the report from the Labor Department to show employers added 175,000 jobs in July, compared to 287,000 in June.

June’s figures surpassed forecasts of 175,000 and rebounded from May’s unexpectedly weak growth of 11,000.

“Payroll gains were much weaker than expected in May and much stronger than expected in June, but we believe that smoothing out the results provides a better indication of underlying dynamics in the labour market,” HSBC said in a note.

“Monthly payroll gains averaged 172,000 in the first half of 2016, down from an average increase of 239,000 in the second half of 2015.”

Meanwhile, the unemployment rate is expected to fall to 4.8% in July from 4.9% in June.

Average hourly earnings are projected to grow 2.6% year-on-year in July, in line with the previous month’s gain.

A strong jobs report in July is likely to fuel speculation that the Fed will raise interest rates soon given improvements in the labour market and the economy. However, with the next policy meeting not until September, economists believe July’s data is likely to be a distant memory by then.

Rabobank said despite the recent rebound in employment growth and the resilience of financial markets after Brexit, a rate hike in September “may be too early for many” in the Federal Open Market Committee.

“It would certainly not be a unanimous decision, which would make a hike counterproductive.”

Friday’s non-farm payrolls report follows data from the ADP which showed private sector employment rose by 179,000 jobs last month, beating expectations for a 170,000 jump.

David Morrison, senior market strategist at SpreadCo, said: “This was good news as far as investors were concerned, but it doesn’t necessarily mean that we’re set for a strong non-farm payroll number on Friday.

“Analysts are generally wary of taking the ADP data as a heads-up for non-farm payrolls as the latter tends to be much more volatile than the ADP release. This has certainly been the case over the last few months. But the other issue is that the next Fed meeting isn’t until 20/21st September. Not only will July’s employment data be old news by then, but the market already doubts that the Fed will tighten monetary policy this year, let alone ahead of November’s presidential election.”

Friday 5 August



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