January Non Farm Payrolls – What to Expect?

Posted by James Hughes -

It’s another week that has yet again been dominated by the coronavirus. Wednesday’s rumours of a breakthrough in treatment led to a surge. Stock markets and the US dollar were the first ones to feel it. Market predictions for this month’s numbers are for an increase of a 160K new jobs. January Non Farm Payrolls would be an increase from last month’s 147K. However, that doesn’t mean we won’t get a high degree of volatility if we see a miss in market expectations.

Mixed expectations

Market predictions for this month’s numbers are for an increase of a 160K new jobs. This would be an increase from last month’s 147K. However, it would show continued growth and could cement the fact that the labour market remains in remarkable shape. However, as ever it will be the average hourly earnings that will be the most important economic reading.

Improvements in the January Non Farm Payrolls print should not surprise as the January ISM manufacturing survey. The survey’s improvement reflected ebbing trade tensions due to the US-China phase one agreement. This has already indicated a rise in factory employment this week.

A stronger wage growth, however, is always good news. Policymakers are eagerly waiting for inflation to heat up towards the Fed’s 2.0% target. Expectations are that wages will increase monthly to the 3% after dipping below last month.

The central bank’s favourite inflation index was persistently on the downside last year. It fell from 2.0% to 1.5% y/y before inching up to 1.6% in December. For the full year of 2019, real consumer spending was also softer, printing an increase of 4.0%. This was the smallest in three years after rising by 5.8% in 2018. Recall that the Fed described the pace of expanding in household spending as “moderate” in the latest monetary statement, revised from “strong” previously. Therefore markets could turn sensitive on measures that have an impact on consumption.

After a surge in stock markets this week it seems like it would take a monumental move in the payroll data to derail the upside we have seen to now. With that mind, the jobs report could garner colossal volatility.

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