US NFP likely gained an additional 170k workers in July - Nomura

Research Team at Nomura, expects the US Bureau of Labor Statistics to report that nonfarm payrolls gained an additional 170k workers in July (Consensus: 180k).

Key Quotes

“From the total gains, we forecast that 10k workers were added in the public sector, implying that private payrolls added 160k employees (Consensus: 171k). If realized, this would be consistent with the slowdown in the pace of job growth seen in recent months.

Job growth rebounded strongly in June following an unexpected decline in private payrolls in May. On average, the recent trend suggests that the pace of job gains has ratcheted down to around 150k per month in Q2 2016 after averaging close to 200k workers per month in Q1 2016.

The US labor market is steadily approaching levels consistent with full employment. In the latest release of the FOMC’s Summary of Economic Projections, the median forecast of the longer-run unemployment rate from FOMC participants was 4.8%. The unemployment rate has stabilized around 4.9% in 2016 and has declined only 0.1pp in the past six months after declining 1.1pp and 0.6pp in 2014 and 2015, respectively. In this environment, we believe the job growth seen in recent months should be enough to keep the unemployment rate unchanged to down slightly. To this end, we expect the unemployment rate, on a rounded basis, to be unchanged at 4.9% in July (Consensus: 4.8%).

Overall, labor market indicators were generally positive over the month. Claims data remained at historically low levels in July and continue to signal that involuntary job separations remain low. National business surveys showed employment activity was steady in July, but regional manufacturing surveys were less optimistic. The final reading of the June Private Payrolls tracking estimate, which incorporates most of the relevant labor market data, was at 154k.

Elsewhere, we expect average hourly earnings to rebound by 0.30% m-o-m (2.6% y-o-y) in July (Consensus: 0.2% m-o-m, 2.6% y-o-y) following a weaker-than-expected 0.1% mo-m increase in June. Our above-consensus call factors in the possibility of a positive payback from a weak reading in June and positive calendar effects (i.e., fewer working weekdays during the BLS survey reference period for some pay frequencies) in July.”