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US: PREVIEW Non−Farm Payrolls

Fri, Nov 6 2009, 10:55 GMT
by RANsquawk Research Team

RANsquawk

Change in Non-Farm Payrolls M/M (Oct) Exp. -175K (Prev. Sep -263K, Aug -201K) Morgan Stanley -150K BNP Paribas -200K

JP Morgan -140K              Credit Suisse -150K

Goldman Sachs -200K       Deutsche Bank -175K

Bank of America -180K     HSBC Markets -175K

Analyst consensus is for a drop of 175K non-farm jobs. This would mark the smallest loss for any month since March 2008.

On the upside the jobs situation certainly seems to be picking up in H2 and this has been illustrated by the recent stability in weekly claims data, a sharp rise in Q3 GDP and a move in to expansionary territory for the employment index constituent of ISM manufacturing. All of that, and a continued downtrend in ADP Employment data suggests a further slowing in non-farm job losses.

However, US consumer confidence showed that consumers were still pessimistic on the employment situation, with the jobs plentiful component dropping to 3.4% vs. Prev. 3.6% and the proportion of people finding it hard to get jobs increased to 49.6% vs. Prev. 47%, marking the highest level since May 1983. Also, ISM nonmanufacturing employment index was weaker than what analysts were looking for.

Overall with mixed signals from recent data and seasonal adjustments also coming into play, today’s report is as important as ever with some analysts looking for risks skewed slightly to the downside.

Unemployment Rate M/M (Oct) Exp. 9.9% (Prev. 9.8%)

The unemployment rate is expected to tick higher in Oct. despite last week’s encouraging Q3 GDP data. Historically hiring has lagged the start of previous recoveries and this one is likely to be no different. Therefore, it is probable the unemployment rate will continue to rise for a few more months, at least, before it begins to retreat towards more natural levels. This trend is particularly evident after large-cap firms Johnson & Johnson and Microsoft recently announced their intentions to lay off more workers even though economic conditions seem to be improving.

Although the Fed and the Whitehouse are expecting a rise to 10% or more at some point analysts say that weekly jobless data suggest that unemployment maybe quite close to peaking However, there is a risk today that we could see a 10% print due to rounding (anything above 9.95% would be rounded up). Last months print in September was 9.832%, so unemployment for the month of October would only have to rise 0.119% to effectively reach 10%.

Market reaction

An overall better than anticipated NFP/Unemployment Rate will likely lead equities higher, while bonds spike to the downside. And vice-versa should the report disappoint. More importantly though, as the USD has become the funding currency of choice recently, its direction has become more tightly correlated to risk appetite and inversely with the direction of equities, albeit less so. Consequently the USD could rally on a poor number and sell off on a good number.

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Published on  Fri, Nov 6 2009, 10:59 GMT