Nonfarm Payrolls and PCE figures, FED's fuel for a lift-off

Although the FED gave actually nothing that clarified when it will start raising rates, markets welcomed its latest statement as a sign that the Central Bank will move on interest rates, probably as soon as September. 

There was a little change in the wording, with the FOMC reckoning  that the labor market continued to improve, "with solid gains and declining unemployment." The Committee, also pledged for a rate hike when it seems "some" further improvement in the labor market.  On inflation, the Federal Reserve continues to believe that is below the Committee's long term target. 

With the a rate hike around the corner, and despite the busy calendar we have next week, market's attention will center in two main readings coming from the US: Personal Consumer Expenditures, and of course, Nonfarm Payrolls. 

On Monday, the US will release its PCE figures, usually not a big market mover, but relevant due to the fact that is the FED's favorite measure of inflation when it comes to make a decision, as it is the primary measure of consumer spending on goods and services in the US economy,  accounting for about two-thirds of domestic final spending.

The latest headline PCE price index year-over-year (YoY) rate is 1.2%, whilst the latest Core PCE index stood  at 1.24% in May. This last maintains a general disinflationary trend, after peaking at 1.7% mid 2014. Still holding above the average of 2013, the index is now into the lows of its last 3-year range, of 1.1%. All of this basically means that the index needs to advance, probably above the 1.5% level to be more rate-hike supportive. Should the reading came below expected, or below previous month levels, chances of a September rate hike will diminish, and therefore weigh on the USD.

On Wednesday, the US ADP private sector survey  is expected to come at 210K in July, against previous reading of 237K. Although the number is hardly consistent with the NFP report, market tends to price it in, which means that the greenback may come under further pressure should the reading miss the 210K or soar, it the number outpaces expectations. 

Finally on Friday, the US will release its Nonfarm Payroll data for July. The economy is expected to add 225K new jobs, against previous 223K, whilst the unemployment rate is expected at 5.3%, unchanged. Also, wages are expected to pick up, and if the first two figures come around expected, salaries will likely have a major roll. Rising wages imply an increase in future consumption and inflation, something the US needs desperately at this point.

This will be the first of the two Nonfarm Payroll releases ahead of the September FOMC meeting, and considering the change in the FED's wording, on "some progress" required in the employment sector, stronger-than-expected figures are needed to put a lift-off in the table. But the figures need to be really up beating in both months, to be enough to filter any weak inflationary reading we may have during the upcoming months.