Crucially, the picture from the ISM services PMI survey points towards the complete opposite, with the employment index rising 6.5% to 57.2%, up from 50.7%.
So which is it? The sheer size of the ISM outperformance for the sector does go relatively far in disproving the slower growth evident in the Markit reading. After all, the Markit reading remains in expansion and thus despite a perceived slowdown in the survey, the figure remains expansionary.
Looking at the ISM survey, we can see an improved yet contractionary employment situation for manufacturing, with the reading now just marginally below expansion, at 49.7 (see above).
Meanwhile, Markit (below) highlights a clear slowing down in the employment growth over recent years. However, this month saw the employment index pick up marginally following the recent decline in employment growth.
The ADP payrolls number provides a clue of what to focus on in this debate, with the breakdown of yesterday’s ADP NFP survey showing a significant outperformance of the services sector. Meanwhile, the manufacturing sector actually proved a drag on employment.
This reliance upon the services sector is nothing new, with the manufacturing sector dragging the August payrolls number down by 20,000. As such, the best indicator to follow is the services sector data. While Markit does show a slowdown in services employment growth, the figure remains positive. Meanwhile, the incredible rise in the ISM employment index could be the clue to tomorrow’s number, pointing towards a potential outperformance compared with last month. Markets expect an improved NFP figure of 171,000, compared with the 151,000 last month. Will we see the payrolls overcome those estimates? The ability of the services sector to live up to ISM estimates will likely prove decisive for the all-important NFP number.
What for the dollar?
Should we see an outperformance in tomorrow’s jobs report, it would likely help the dollar on its way, in what has already been a stellar week for the currency. The chart below highlights the breakout that the dollar index is attempting. An hourly close above 96.48 would represent a bullish signal following an exit from this two-month ascending triangle pattern. Should that occur, we would be looking for a move back above 97.62, signaling further weakness for the likes of EUR/USD and GBP/USD. However, a weak jobs report could provide a reversal, dragging price back into the triangle pattern, thus looking back towards trendline support (currently 94.96).