US Labour Market set for a Reality Check Non Farm Payrolls Outlook

With the first Friday of the month fast approaching, focus switches towards the latest US jobs figures, where a surprisingly strong labour market in July is expected to slow in August.

Last time around both non-farm and private payrolls blasted past somewhat downbeat expectations with US employers hiring the most workers in five months and breaking three months of consecutive jobs growth slowdown.

Despite the jump in hiring in July, August is expected to see a return in jobs growth slowdown.

Current forecasts for Fridays US jobs figures is:

	Previous (July)	Forecast (August)
Non Farm Payrolls	163,000	125,000
Private Payrolls	172,000	137,000
Unemployment Rate	8.3%	8.3%

Market Reaction

The market reaction will, as always, be weighted in how much the actual figures beats or fails to meet expectations. Added to this element is the added caveat that investors will inevitably utilise any important economic data out of the US – to which non farm payrolls perhaps is one of the most important – to gauge the likely chances of the Federal Reserve in moving to increase stimulus measures for the US economy past the existing extension to Operation Twist (which finishes at the end of this year).

From an equities perspective, it may well fare out to be a ‘win-win’ situation. A worse than expected reading would normally see a knee jerk bearish reaction in the markets. Yet still, a weak reading of below 100,000 jobs would apply even more pressure on the Fed to start a third phase of quantitative easing, particularly if the unemployment rate nudges up to 8.4%, which would be its highest level of unemployment since December last year. A bad reading would not be what President Obama wants to see, with the US Presidential election due in just two months and so there could also be some political pressure on Bernanke to ease any pain in the markets. A worse reading could therefore limit the scale of any knee jerk bearish reaction in equities.

A better than expected reading however typically sees a positive reaction in the markets, and is likely to be cheered by investors, initially. But yet again, it will also dampen expectations of additional Fed stimulus, particularly if we see a particularly strong reading.

There is also likely to be a scenario where we could either seen a double positive or double negative for the US dollar. A strong reading would likely be double positive, in that it’s a good sign for the US economy and lessens the chances of more stimulus in the immediate term. A weak reading could be double negative for the green back currency, as it would indicate further pressures on the US labour market and increase optimism that the Fed will be forced to act soon.

Onto Friday’s jobs data…

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.