Nonfarm Payrolls preview: wages' growth vs. job's creation, which one will weigh more?

Is once again Payrolls time. The US economy will release its October employment data this Friday at 12.30 GMT, and the world's largest economy is expected to have added during that period 190K new jobs. The unemployment rate is foreseen steady at 3.7% while wages are expected to have risen 0.2% MoM and by 3.1% YoY, this last, well above year-average, as Average Hourly Earnings' gains have been below 3.0% since mid-2009.

Back in September, the economy created "just" 134,000 new jobs, missing expectations, although the unemployment rate fell to 3.7%, its lowest since December 1969.  The sour headline and unimpressive wages' growth, played against the greenback back then.

Ahead of the release, the ADP survey showed that the private sector added 227,000 new jobs in October, most of them in the services sector, a mildly encouraging sign of a  positive outcome this Friday, as the two surveys tend to be out of step: the ADP survey reported 230K new private jobs created in September, with the NFP headline outcome roughly 100K below it.

A more encouraging sing came from the Labor Department's Employment Cost Index, released last Wednesday, which rose 0.8% in the three months to September, above the previous 0.6% and beating expectations of 0.6%. The same report showed that wages rose 2.9% in September from a year earlier, the biggest not-inflation-adjusted in over a decade. Sluggish wages´ growth has been the main concern within the economic recovery ever since the 2008 crisis, because of this being one of the reasons for subdued inflation.

US CPI, however, has been firmly up and at healthy levels pretty much since the year started and is less of a concern, and more the reason behind rising salaries, are employers have now to compete with better offers for skilled workers.

Thursday data suggest strong wages' growth but a softer headline. The October Challenger Job Cuts showed that US-based employers announced plans to cut 75,644 jobs from their payrolls, 36.8% higher than the 55,285 cuts announced in September. According to the official report, 58.2% of October job cuts come from Verizon’s announcement that it will offer voluntary severance packages to 44,000 managers in an effort to save $10 billion.

Weekly unemployment claims rose more-than-expected, up by 214K versus the 213K forecasted, for the week ended October 26, but resulted below the previous week reading that was upwardly revised to 216K, holding at multi-decade lows. Labor productivity increased 2.2% in Q3, matching the market's forecast while Unit Labor Cost was up 1.2% in the same period, beating expectations of 1.0% and well above the previous -1.0%.

That said, the market will initially react to the cold numbers, and the reasons, the whys, and the hows will be priced in after the dust settles.

The dollar heads into the release softening across the board amid a better market mood, but the underlying factors that kept it running before this latest slump, remain unchanged. Italy and the EU hadn't solved the budget issue, nor the UK clinched a Brexit deal. The trade war between China and the US will likely continue escalating and hurting global economic growth. The Federal Reserve is still leading the tightening path, set to keep on rising rates, while only a few other central banks follow it and with delay. Sentiment will likely keep overshadowing macroeconomic data in the longer run unless really dismal numbers put at doubt the future Fed's decision, something utterly unlikely at this point.