US Non Farm No Longer a Weather Report

Posted by Naeem Aslam | 08/12/2017 08:28

The political noise is still something which investors needed to be mindful
Friday’s job number is going to significantly shape the expectations for the fourth quarter.
We expect the November payroll number to be at 198K
keep in mind that the 12 month average is at 167K​

 More and more eyes are going to be focused on one particular number which matters the most; the US Non-Farm payroll data. Perhaps, there is no economic data which commands more attention than this. It sets the tone for the way the interest rate hike expectations would be moving.
 
This month’s non-farm payroll number has a particular importance, because for the last two months, the jobs numbers were all over the place due to the impact of hurricanes. Investors could not gauge the actual health of the US economy. This is something that the market has experienced over and over. Yes, the upcoming data would not be considered as a weather report, however the political noise is still something which investors needed to be mindful of due to the ongoing debate over in Washington about the US tax overhaul. This is because the US tax overhaul has the potential to cloud the judgement of many and we certainly do not want the Fed to be one of them.
 
Friday’s job number is going to significantly shape the expectations for the fourth quarter. What we need to see in Friday’s number is that the slack in the labour market is diminishing and wage growth has strengthened. This would force consumers to spend more. We expect the November payroll number to be at 198K, keep in mind that the 12 month average is at 167K, and we need to see the economic growth becoming more sustainable in order for the 12 month moving average to cross the 200K mark. The previous month’s wage growth and average hourly numbers were distorted due to the elevated demand for construction and markets have overestimated its strength.  
 
This is the last set of NFP numbers before the Fed would announce their interest rate decision this month. The upcoming Fed chairman is on the same page as Janet Yellen (the current Fed chairwomen) that the US economy appears to be improving because the GDP growth is accelerating. Last two quarters have seen the GDP growth of 3%, but the current quarter may not grow as strongly as the previous one. Especially, when you question the fact that if the 3% GDP growth in the previous quarter had any residual effects of the quarter before. We do think that the Fed is going to increase the interest rate coming next week. The only question is if Friday’s number is going to create further friction among the policy members (in relation to the number of interest rate hikes in 2018).
 

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