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1 Feb 2016
US NFP: The next big important thing – BBH
FXStreet (Delhi) – Research Team at BBH, suggests that it is difficult to envision pendulum of expectation swinging much harder against the Fed and the US January employment report on February 5 is important.
Key Quotes
“Given the recent averages, it is unreasonable to expect that job growth exceeded December's 292k. The consensus is around 190k though we suspect the risk is on the downside. Provided the surprise is not significant, attention can focus on the details. There is a chance the unemployment rate cut tick down to 4.9%, a new cyclical low.
Hourly earnings is also important. The problem here is the base effect. Last January hourly earnings rose 0.6%, and this will drop out of the year-over-year reading. Hourly earnings rose 1.8% in 2014 and 2.5% in 2015. In January, hourly earnings likely by 0.3%, which is a little above the 12- and 24-month average, but the year-over-year rate will fall back to 2.2%.
The employment data may also help quiet those who think the US is in a recession. Well-known hedge fund managers have been critical of the Fed's hike, and at least one has forecast QE4. A recent Bloomberg article discussed the wagers or insurance being purchased on the US having negative rates by the end of next year.
Simply stated, a recession in the US requires a rise in unemployment. It has been falling. It requires a decline in payrolls. Both the establishment and household surveys shows expansion. It is true that the goods sector is doing poorer. We share three observations.
First, part of this is the impact from the dramatic drop in oil prices. This adversely impacts investment, orders, shipments, and output. It does appear that employment in the states where energy production is important has seen a larger downdraft the output itself.
Second, we need to be careful what is being measured. There is a volume and value component. A decline in prices can have a dramatic impact on value measures that overshadow the volume. Moreover, partly due technological progress, capital equipment, like other goods prices, appear to be falling in real terms.
Third, the worst for the manufacturing sector may have passed. Markit's final January PMI reading for manufacturing is expected to confirm the improvement to 52.7 from 51.2 in December. The ISM for manufacturing is also expected to improve from the lowly 48.2 reading in December. The gap that we noted between the manufacturing and service ISM readings has begun narrowing in recent months and is expected to have done so again in January. Lastly, even though US vehicle sales are slowing from the record pace last year, a small sequential increase from the 17.22 mln pace seen in November, is still robust and will support output.”
Key Quotes
“Given the recent averages, it is unreasonable to expect that job growth exceeded December's 292k. The consensus is around 190k though we suspect the risk is on the downside. Provided the surprise is not significant, attention can focus on the details. There is a chance the unemployment rate cut tick down to 4.9%, a new cyclical low.
Hourly earnings is also important. The problem here is the base effect. Last January hourly earnings rose 0.6%, and this will drop out of the year-over-year reading. Hourly earnings rose 1.8% in 2014 and 2.5% in 2015. In January, hourly earnings likely by 0.3%, which is a little above the 12- and 24-month average, but the year-over-year rate will fall back to 2.2%.
The employment data may also help quiet those who think the US is in a recession. Well-known hedge fund managers have been critical of the Fed's hike, and at least one has forecast QE4. A recent Bloomberg article discussed the wagers or insurance being purchased on the US having negative rates by the end of next year.
Simply stated, a recession in the US requires a rise in unemployment. It has been falling. It requires a decline in payrolls. Both the establishment and household surveys shows expansion. It is true that the goods sector is doing poorer. We share three observations.
First, part of this is the impact from the dramatic drop in oil prices. This adversely impacts investment, orders, shipments, and output. It does appear that employment in the states where energy production is important has seen a larger downdraft the output itself.
Second, we need to be careful what is being measured. There is a volume and value component. A decline in prices can have a dramatic impact on value measures that overshadow the volume. Moreover, partly due technological progress, capital equipment, like other goods prices, appear to be falling in real terms.
Third, the worst for the manufacturing sector may have passed. Markit's final January PMI reading for manufacturing is expected to confirm the improvement to 52.7 from 51.2 in December. The ISM for manufacturing is also expected to improve from the lowly 48.2 reading in December. The gap that we noted between the manufacturing and service ISM readings has begun narrowing in recent months and is expected to have done so again in January. Lastly, even though US vehicle sales are slowing from the record pace last year, a small sequential increase from the 17.22 mln pace seen in November, is still robust and will support output.”