NFP leading indicators: Stalled hard data negates positive signal for US jobs report


  • NFP leading indicators table is mixed again, with the positive US labor market trend showing some signs of exhaustion.
  • Dismal ADP Employment report leads negative signals provided by hard data indicators.
  • Business and consumer sentiment surveys show optimism signals, but will it translate into a good US jobs report?

Things have been looking good in the US labor market for a while now, but the positive employment trend in the United States economy could be halted tomorrow, when May's US jobs report will be released. Despite a dismal report in February, the US economy has mostly been adding jobs comfortably above the 180k average consensus mark for the last eight months, bringing the Unemployment Rate down to record lows and pushing up the wages to above 3% year-over-year rises. 

The leading indicators for the Non-Farm Payrolls report in the past month have provided mixed signals, with the consumer and business surveys all showing positive signs for the labor market but the hard data has disappointed, with the ADP report, the Jobless Claims and the Job Cuts all showing worse-than-expected figures. 

That completes an NFP leading indicators table with a mixed balance of positive and negative signals, but where the usually more correlated-to-NFP hard data bringing plenty of red, while the also indicative but less reliable as a short-term predictor soft data provided by businesses and consumers in surveys being rather positive.

Previous Non-Farm Payrolls Positive NFP headline showed a big number: 263k jobs added
Challenger Job Cuts Negative The number of corporate layoffs in May jumped from around 40k to 58.57k, which could be a bad signal for the unemployment rate.
Initial Jobless Claims Negative First-time employment claimants were over 200k each of the last four weeks, which might be the end of the long-term downward trend in the indicator.
Continuing Jobless Claims Negative Individuals looking for jobs currently receiving unemployment benefits also seem to have found a bottom around 1.65M, which might mean the job creation has stalled a bit.
ISM Non-Manufacturing PMI Positive The Employment Index in the Non-Manufacturing PMI spiked to 58.1%, increasing by 4.4%. Both PMI surveys are showing strong improvement in the labor market conditions.
ISM Manufacturing PMI Positive The Employment sub-index in the Manufacturing PMI grew 1.3% in May, from 52.4% to 53.7%.
University of Michigan Consumer Confidence Index Positive UMich Consumer Confidence is surging, back at the 100 level for the first time since last September
Conference Board Consumer Confidence Index Positive The Conference Board Consumer Confidence registered growth for the third consecutive month, nearing the pre-US government shutdown highs
ADP Employment Report Negative 27k is a dismal number of job creation reported by ADP, which given its strong correlation with NFP, provides a pretty strong negative signal.
JOLTS Job Openings Positive Job openings nearly at 7.5M, back on track after a dip in February

Our bias when reading this mixed table is slightly negative, as hard data is showing some signs of stagnation after months of a very good performance. 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", released a very poor 27k job addition, a multi-year low. Both the Initial and Continuing Jobless Claims, which share weekly releases, have stalled around 220k and 1.6M each one, levels that are around the lowest in the last decade but which seem to be setting a bottom as their downtrend stops. The Challenger Job Cuts indicator also adds some force to these negative signals, as the corporate layoffs have jumped from around 40k to over 57k in the last month, which might put even more pressure to the creation of new jobs to deliver a strong number in the NFP.

That said, we can't dismiss the optimism showed in both (UMich and CB) Consumer Confidence indexes and also both the Manufacturing and Non-Manufacturing PMI employment indexes, which still show upbeat consumer and corporate mood about the labor market after a couple of down months in February and March. Will this translate into actual figures of job creation, wages and unemployment rate tomorrow?

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