US NFP Preview: 9 major banks expectation from July month’s labour market report

Today, the all-important July month’s non-farm payroll report from the US is scheduled to be released. As we get closer towards the release timings, here are the expectations as forecasted by the economists and researchers of 9 major banks regarding the upcoming employment report.

All the 9 major banks expect the July NFP reading to lie somewhere in between 175K to 205K, while they expect the unemployment rate to fall to 4.3% from 4.4%, thus matching the cyclical low.

Rabobank

The consensus is 180K, down from 222K. More importantly, average hourly earnings are seen up 0.3% vs. 0.2% last time, although even that will take the headline rate down from 2.5% to 2.4% y-o-y. As such, if we get a weaker print we could see potentially earnings slip to 2.3%, or even 2.2% in a worst case scenario depending on revisions. On the other hand, if we do suddenly see earnings beat the bullet it’ll be a shot across the bow of Treasury yields: that could be interesting given how unloved USD is at present.

Nomura

We expect an increase of 175k in nonfarm payrolls (Consensus: 180k) with 170k from the private sector and 5k from government. In addition, we expect manufacturing employment to increase by 5k (Consensus: 5k). Payroll growth has averaged a healthy 180k per month during H1 2017, just slightly below the 2016 average of 187k. Incoming data suggest this trend will continue in July. Employment indicators from regional business surveys remain well within expansionary territory, although slightly lower than in June. Additionally, the labor market differential index in the Conference Board’s consumer confidence survey has improved over the past four months, while initial jobless claims remain subdued. Continuing claims have ticked up recently, but remain low by historical standards. Payrolls surprised to the upside last month, driven by a sharp 22k increase in local government employment excluding educational services. We do not expect a similar surprise for July.  We expect the unrounded unemployment rate to fall to 4.3% (Consensus: 4.3%). Last month, the unemployment rate rebounded to 4.4% from 4.3%. We highlight that on an unrounded basis, last month’s reading was 4.36%, just barely pushing into 4.4% territory. Thus, it would not take much to drive it back down to 4.3% as strong household employment gains continue. Headline unemployment is low by historical standards, but due to changes in the labor force composition there is still some room for further declines. Average hourly earnings in June were weaker than expected. However, with a tightening labor market, we expect some modest improvement. For July, we expect a 0.33% m-o-m (2.44% y-o-y) increase (Consensus: 0.3%), a slight pick-up from 0.15% in June.  Trade

HSBC

The average monthly increase in nonfarm payrolls in the first half of 2017 was 180,000. Retail employment growth has slowed this year, but many other key industries continue to create jobs at a steady pace. We forecast nonfarm payrolls increased by 175,000 in July. Wage growth has picked up only modestly in recent years, even as the unemployment rate has continued to fall. We forecast a 0.3% m-o-m rise in average hourly earnings in July. The year-on-year rate could slip to 2.4%, down from 2.5% in June. We forecast the unemployment rate fell to 4.3% in July from 4.4% in June.

TDS

July nonfarm payrolls will be the primary source for event risk. TD is above the market and looks for a 190k print (market: 180k), but we would note that wage growth is more important for the Fed. We look for strong job growth in private services and see risk of a sharp pullback in government jobs. The unemployment rate should edge lower to 4.3%, matching the cycle low, while year-ago wage growth should slip to 2.4% from 2.5% due to strong base effects, masking a 0.3% increase on the month (market: 0.3% m/m, 2.4% y/y).

BNPP

We expect Friday’s July nonfarm payroll data to show a strong 205k gain in emplyoment. However, market focus is more likely to be on wages, where our economists expect a subdued 0.2% m/m increase, which would be a year-on-year deceleration to 2.3% – the lowest level since August 2015. 

Danske Bank

Today all eyes will be on the US employment report. We expect that nonfarm payrolls rose 175,000 in July but markets will focus on the unemployment rate and wage growth. We expect the unemployment rate was unchanged at 4.4%, while the average hourly earnings increase likely declined to 2.4% y/y from 2.5% y/y. The Fed continues to struggle with the combination of low unemployment and low inflation.

Westpac

It has been an interesting six months for employment growth in the US, nonfarm payrolls reporting month-average growth of 224k in Jan/Feb; a weak 50k in Mar; then 207k in Apr; 152k in May; and 222k in June. The net result is a month-average pace of 180k, broadly in line with 2016. At this stage in the economic cycle, given full employment has been reached, employment growth should have slowed. But it hasn't and partial indicators remains supportive of further strong gains. In Jul, we look for a 190k rise. Since January, the unemployment rate has consequently fallen from 4.8% to 4.4% in June. Participation has also been a factor, edging 0.2ppts lower to 62.8%. In Jul, we expect the unemployment rate to remain unchanged, with any surprise in employment to be offset by participation.

ING

The US jobs report will set the tone for the coming week. Business surveys suggest the economy is performing well and creating jobs in reasonable numbers. However, last month’s robust 222k gain probably misrepresents the true picture so we look for a slower rate of job creation in July at around 170k. The wage number will also be a key figure for the market to focus on. We continue to expect wage growth to gradually accelerate as the jobs market continues to tighten. But that's going to take time – we think it is very unlikely that wage growth will top 3% this year. After a strong 222,000 reading in June, we’re likely to see a correction closer to the underlying trend in July. Importantly, as the economy closes in on full employment (if it isn’t there already), you’d expect jobs growth to slow. It would now take a series of very poor (sub-100k) readings to make policymakers worried. June’s data saw a small good rise in the unemployment rate as 400,000 people entered the work force, with around two-thirds finding a job. We expect the unemployment rate to fall back to 4.3% this week. But even a rise this time has to be taken in the context of the remarkable drop in the rate that we’ve seen since the start of 2017.

BBH

It is not that the update on the US labor market is unimportant, but the question for investors is its impact on the powerful trends in the market. Job growth continues at a pace that is gradually absorbing slack in the labor market.  The three-month average stands at 194k, just above the 2016 average of 187k. Last July hourly earnings rose 0.4%.  That means that a 0.4% increase is needed in July simply to keep the year-over-year pace at the 2.5% seen in June.  It has not risen by more than that since November 2008 (0.5%).  The three-, six-, and 12-month average is at 0.2%.  Not to put too fine of a point on it, but the real issue is how much the year-over-year will pace slow:  2.3%-2.4%.  It finished last year at 2.9%.”

Click here to read more about the NFP preview from our Chief Analyst Valeria Bednarik titled “Nonfarm Payrolls Preview: NFP can't save the not-so-mighty dollar”