US Q1 GDP was very poor at 0.1%, but as the Fed rightly points out, the March and April data series has shown solid improvement and good payback as the US economy comes out of the polar vortex, consumers ramp up spending and companies increase inventories. With employment on an improving trend, as highlighted by the strong ADP private payrolls report released on Wednesday, it would certainly be positive to see this complimented by a solid April US payrolls report.
Naturally the market will jump straight to the headline numbers, where consensus is that we should see 215,000 jobs created in April. This is the highest consensus estimate we have seen since May 2010, with the economists predictions ranging from 250,000 to 175,000 jobs.
The unemployment rate is expected to tick down modestly to 6.6%, equalling the low point we saw back in January. As always, the participation rate will be in focus given Janet Yellen’s recent comments that there is still substantial slack in the labour market. It would certainly be positive to see a higher participation rate (last month it printed 63.2%) and at the same time see a lower unemployment rate.
These are the key variables which will cause initial moves in the US bond market and in turn cause moves in the USD, which is fairly unloved at the moment. Gold will most likely head lower on a good print, while equities should find support despite a strong print solidifying the view that the Fed will continue to cut back on stimulus.
Market positioning ahead of the print
Given recent moves in the USD it seems the market is not positioned too aggressively for a good number, unlike last month where a slight miss caused a sizeable reaction as traders had positioned themselves for a payrolls print well above 250,000 (the actual print came in at 192,000).
It will also be worth looking at the inflation and efficiency indicators, with hourly earnings and hours worked in focus. Hourly earnings were flat last month, but this month are expected to increase 0.2%. It’s this figure which I think those economists desperate to see inflation in the US will be honing in on.
All-in-all this payrolls report is not likely to be a game-changer, and given positioning in the bond market and USD, a weak result will likely be taken fairly well by the market. Unless we see a number below 120,000, with a rise in the unemployment rate and other poor variables, we shouldn’t see the market deviate from its current view that the Fed will continue to cut its bond purchases by a further $10 billion in the June 18 meeting.