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October Non Farm Payrolls expectations

We are closing in on the October’s release of US Non-Farm Payrolls data.

The following are the expectations as forecasted by the economists and researchers of 7 major banks.

After the September employment report indicated that the US labour markets continued to tread water, all the 7 major banks expects that the October NFP is likely to print a number in between 170K to 245K while given the steady job gains, the unemployment rate is likely to return to 4.9% in October. In addition, as the labour market continues to tighten, the wages are likely to picked up over the month.


All things considered, we expect private payrolls to have expanded by 170k in October. We forecast that government payrolls have remained unchanged in October, implying that nonfarm payrolls increased by 170k. With manufacturing activity still soft, we think payrolls in the sector declined by 5k. Consensus is aligned with our forecasts for nonfarm and manufacturing payrolls. On the household survey measures, given the steady job gains, we forecast that the unemployment rate has returned to 4.9% in October (consensus predicts the same), following an uptick to 5.0% in September. Last, as the labor market continues to tighten, we think that wages likely picked up over the month. Plus, a favorable calendar quirk (fewer working days during the BLS survey reference period) should help boost the per hour wage. Taking these factors into account, we forecast that average hourly earnings have grown by 0.3% m-o-m (2.5% y-o-y) in October. Consensus is also at 0.3% m-o-m (2.6% y-o-y).


We expect an overall favorable tone to the October jobs report, reflecting payroll growth well above its breakeven pace and a pickup in wage gains. While the bar for a year-end rate hike is low in our view (barring a US election upset), the report is important for keeping December rate expectations firmly in place as any downside surprise will be noted by the Fed. Nonfarm payrolls are expected to post a 195k gain in October, with upward revisions to the prior two months. Largely underpinning our forecast is the pronounced pickup in ISM employment indicators. The unemployment rate likely is expected to slip back to 4.9% in line with sustained above-trend job growth and given that the September print was at the cutoff (4.96%). Timing of the reference week points to a strong 0.3% m/m print for average hourly earnings, keeping the pace of earnings growth stable at 2.6% y/y. We look for average weekly hours to remain unchanged at 34.4 hours.


If the market can tear itself away from its current fixation with politics, the release of the US October jobs report will get a look-in. This week’s FOMC meeting left investors with the impression that barring any disaster on the data front the Fed is prepared to hike rates in December. The market consensus for nonfarm payrolls lies at a respectable 173K, with hourly earnings expected to edge up by 0.3% m/m. Yesterday’s US September factory goods data slightly beat estimates while the final reading of the service ISM recorded a healthy rate of expansion. Durable goods data and initial unemployment claims, however, were disappointing.


The release of the jobs data in the US may well end up reinforcing expectations of a fed rate hike in December but the market reaction is very likely to be delayed until beyond the result of Tuesday’s presidential election. Our internal NFP model gives us an estimate for today of 245k, well above the Bloomberg consensus of 170k. A stronger than expected NFP print today could well prompt a muted response given opinion polls in certain key swing states (New Hampshire the latest) show a tightening in the race.


Most look for US jobs growth to return toward this year's average pace (~178k) from overshooting it the past three months (average 192k). However, what this means is that the market is looking for a little improvement over September's 156k. Internals are important. There is some chance, largely due to rounding, some are looking for the unemployment rate to slip back to 4.9% from 5.0%. Average hourly earnings are expected to rise by 0.3%. If so, that would keep the year-over-year pace at 2.6%, slight ahead of the CPI. The average work week is stable at 34.4 hours.

Danske Bank

Today, the US jobs report for October due out at 13:30 CET will be in focus. We continue to receive mixed signals about the labour market. Claims figures continue to signal job growth well above 200,000, while the Markit PMI employment index for October points to growth just above 100,000. We estimate jobs growth was 170,000 in October. The unemployment rate rose to 5.0% in September due to an increasing participation rate. That the unemployment and underemployment rates have moved sideways in 2016 indicates that there is still slack left in the labour market. We estimate the unemployment rate was unchanged at 5.0% in October, with the probability skewed towards a fall back to 4.9%. We estimate that average hourly earnings increased 0.3% m/m in October, implying an unchanged annual growth rate of 2.6% y/y. Wage growth has moved sideways in 2016, indicating that the underlying inflation pressure is still subdued.


US payrolls dominate the day ahead. The consensus is for a rise of 175K (RBC economists are in line) and this does not appear to have changed much after the ADP or ISM non-manufacturing (though both were weak). The consensus of forecasts that have been refreshed is little different at 171K. Even after the decline in Fed hike expectations as political uncertainty has risen this week, markets seem quite fully priced at around a 75% probability of a hike by year-end. As such, we think USD would fall further on a weak outcome than it would rally on a strong one.

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