Jan ’20 NFP Report Preview

The monthly nonfarm payrolls reports will be coming out tomorrow. The data, which will be released by the Labor Department is forecast to show a slight pick up in the payroll figures.

For the month of January 2020, US nonfarm payrolls are forecast to rise 150k. This is after the December payrolls came in below estimates at 145k. It was also the lowest payroll figures since May 2019.

The unemployment rate is forecast to remain unchanged at 3.5%, the same as last month. However, the underemployment rate which is a measure of discouraged and underemployed people fell to 6.7% which is the lowest on record since 1994.

But the wage growth, which fell to 2.9% in December is tipped to rise to 3.0% on the year ending January 2020. The labor force participation rate held steady at 63.2% during the month.

Overall, the report for December was slightly disappointing, if not mixed. There was also a downside revision to the payroll figures for the previous two months. Data for both October and November saw payrolls decreasing by about 14,000.

Most of the downside to the payrolls were driven by a decline in the manufacturing sector jobs, while services sector jobs managed to offset some of these declines.

The manufacturing sector saw a net gain of only 46,000 compared to 246,000 just the year before in December 2018.

Outlook for Payrolls in January Remain Mixed

While the estimates on both the payrolls and wage growth are somewhat optimistic, the outlook is quite mixed. There is a chance that the payrolls report could come out with a negative surprise.

Still, regardless of the outcome, the data will signal what is going on. A weaker than forecast estimates will reinforce the view that the US economy is indeed slowing down. An upside surprise at best will see only a short term reaction from the markets.

Thus, the risks are more inclined to a negative surprise than for a beat on estimates.

The markets will also be focusing on wage data. The Fed, in its recent monetary policy meeting, signaled that it will be tolerating an overshoot of the inflation target. This means that interest rates will not rise even if inflation hits above the 2% target.

Amid this policy view, wage growth in the United States will become even more important.

Despite wages running slightly higher than inflation, when removing the inflation, real wage growth is running at the lowest level since July 2018.

This could potentially be one of the key indicators to look into today’s jobs data. A sluggish pace of wage increase could see a negative reaction from the markets.

Another factor to consider when looking at the January 2020 payrolls report is the impact of Boeing. Being of the major employer in the United States, the company has been plagued by the 737 MAX issue. During the month of January, the company laid off 2,800 workers in Kansas. This is about 20% of its workforce in the region.

Further impact could be felt in the coming months.

Impact of the January Payrolls Report

Today’s payrolls report marks an end to a busy and data-heavy week. Alongside the economic reports, the US earnings season continues in the backdrop of fears of the effect of the coronavirus.

Thus, the markets will be a bit volatile into the payrolls report. The equity markets have been pulling back after hitting new highs. But we do not expect to see a reversal of this trend based on monthly payrolls data alone.