NFP leading indicators: Negative signs outweigh the positives

After a dismal May report which helped the Fed subsequently hint an upcoming July interest rate cut, the US jobs report for June seems a bit less decisive. Looking at the NFP Leading Indicators table, it's not like things are looking much better this time, but markets might already have priced in the US Dollar the Fed dovish re-thinking.

US jobs report pre-release checklist – Jul 5th, 2019

The first glance at the table seems quite balanced, with four negative inputs, three neutral and three positive signals, but things get more negative looking at the details. It's not only that we are coming from one of the worse NFP figures from the last decade, but also three of the most meaningful leading indicators have provided pretty strong negative surprises. Starting with the ADP Employment private report, considered by our Non-Farm Payrolls guide as "the harbinger of the NFP, because of the existent correlation between the two", which only printed 102k new jobs added. This is an improvement from the terrible figure from May (revised to 41k), but still marks the second-worst figure in the last eight years. 

The Employment Index of the ISM Non-Manufacturing PMI survey also showed a clear disappointment, falling from 58.1% in May down to 55.0% in June. It is the sixth time in the last nine months in which the labor market component of this important survey prints a drop, indicating a mid-term bearish trend. Our NFP crash course mentions that "you should consider the employment component of Non-Manufacturing more important than the Manufacturing, simply because services sectors amount to 70% of US employees". The third negative component came last week, with the Consumer Confidence Index released by the Conference Board falling by 13 points, back to levels not seen since January during the US government shutdown.

It's not like all signs in the US employment sector point to another terrible jobs report, though. The ISM Manufacturing PMI shows a pretty resilient behavior, as its Employment Index surged from 53.7% to 54.5%, the second month in a row with a positive outcome.

The number of corporate layoffs printed by the Challenger Job Cuts report has fallen down and the US companies also announced a diminishing amount of lay-offs for the third quarter and that should help keep the US labor market with the foot on the pedal. The JOLTS Job Openings number is at multi-year highs which also shows there could be more gains of jobs coming up. 

With pretty neutral signs from the weekly Jobless Claims figures (retracing a bit being quite stable around multi-year positive levels) and the University of Michigan Consumer Confidence survey (also retracing in the last month but still following an upwards long-term trend), there is something in the menu for either bulls and bears.

That said, we are siding more in the bearish side for this upcoming NFP report, anticipating a rather disappointing performance in the US jobs creation, although probably not as bad as the one printed last month.