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US jobs preview: Will employment picture sour as the Fed plans to hike rates further?

The US jobs report looks likely to bring a normalization for payrolls, while wage growth provides inflation proxy.

FOMC Source: Bloomberg

The August US jobs report is due to be released at 1.30pm, on Friday 2 September (UK time). Coming just a week after the Jerome Powell appearance at the Jackson Hole symposium, there will be some who question quite how much the forthcoming jobs report will impact thinking at the Federal Reserve (Fed). However, that is not to say markets will cast aside any notable moves in employment statistics, with traders instead likely to simply approach it in a different manner. Instead, any notable uptick in unemployment or payroll weakness could raise risk-off sentiment for markets. After-all, signs of economic collapse are likely to hurt sentiment given the Fed’s apparent willingness to continue raising rates to cut inflationary pressures. On that note, markets will also be keeping a close eye out for the latest wage data as a proxy for inflation. Given the Fed are specifically targeting inflation, any particularly notable movement in wages could be perceived as a contributing factor behind future monetary policy at the Fed.

Given the potential market moves that come with each element of this release, it is worthwhile keeping an eye out for the secondary employment surveys for a signal of what we might see on Friday.

What do other employment surveys tell us?

It is often useful to look out for clues within alternate employment readings, with the Automatic data processing (ADP), Conference board survey, jobless claims, and Institute for Supply Management (ISM) purchasing managers index (PMI) survey all worth analysing ahead of the main event.

Conference board survey – Looking at the latest ‘Conference board’ survey for August, the ratio between those finding jobs “hard to get” vs “plentiful” provides a good proxy for unemployment. As we see below, the ratio has been on an upward trajectory since March, reaching the highest level in over two years. However, it is notable that we have not seen a dramatic move this month, with the ratio just ticking mildly higher. Thus, while we are expecting to see unemployment turn upwards, the steady increase in this ratio does signal that any rise in unemployment will likely be steady in nature.

Unemployment vs cb ratio 010922 Source: Refinitiv
Unemployment vs cb ratio 010922 Source: Refinitiv

ADP payrolls – The ADP employment survey is back after a prolongued period of recalibration. Quite whether this new formula will provide a better reflection of Friday’s payrolls figure remains to be seen. However, it is evident that last month’s backdated figure of 268,000 came in well below the headline figure of 528,000. Thus, it is perhaps a little too early to take any significant conclusions from this newly reformed ADP payrolls survey.

ADP VS NFP Source: Refinitiv
ADP VS NFP Source: Refinitiv

Initial jobless claims – Initial claims have started to turn lower over the course of August, with the four-week average responding in kind. That helps to alleviate fears of a significant ramp-up in unemployment or sharp drop in payrolls.


Continuing jobless claims

While the initial jobless claims figure could tell us something about the potential for a change in the payrolls figure, the continuing claims trend gives us an idea about unemployment. The image below highlights how we are yet to see any notable uptick in the continuing claims figure, with a slight tick higher looking unlikely to signal a major increase in the unemployment rate.

Continuing jobless claims Source: Refinitiv
Continuing jobless claims Source: Refinitiv

ISM PMI surveys – This month we are without the services PMI, which is due to be released next Tuesday. Instead, we will have to focus on the lesser manufacturing reading, which has managed to rise into a five-month high of 54.2. That could bring hope for a better-than-expected payrolls figure come Friday. However, it is worthwhile noting that much of the job gains seen since the inception of the Covid-19 pandemic have come from the services sector.

ISM PMI surveys Source: Refinitiv
ISM PMI surveys Source: Refinitiv

Non-farm Payrolls

The headline non-farm payrolls figure is expected to fall back after a surprise bumper figure of 528,000 for July. That represents the highest figure in five months, breaking the trend of falling payrolls over that period. Undoubtedly, it makes sense for some normalization, given the fact that we are coming off the back of such an elevated reading. However, a move back down towards the 300,000 region should not necessarily shock markets as last month’s bumper reading will provide a degree of protection against any major decline.

Payrolls by industry Source: Refinitiv
Payrolls by industry Source: Refinitiv


Looking at the unemployment rate, markets are expecting to see the rate remain at 3.5% following a surprise decline last month. The Conference Board ratio does point towards a potential uptick, but continuing claims data does not support that theory yet and we are yet to see any uptick in unemployment yet. Should unemployment start to push higher, it would certainly be something markets would pay close attention to given the impact on consumer spending. However, last months decline highlights the fact that the jobs market appears to be in a strong position despite wider economic fears.

US average hourly earnings

US wages will be a key element for traders, with inflationary fears driving the sell-off in risk-assets this week. While inflation has been pushing sharply higher, central banks will be hoping that employers do not cause another round of cost-push inflation by driving up wages and passing those costs on to the consumer. The chart below highlights how wage growth has remained above 5% over the course of 2022 thus far, with few signs that this will reverse anytime soon. The lower section of the chart highlights the historic squeeze on disposable income currently underway in the US. Markets are expecting to see wage growth fall back to 5.1% from 5.2% seen last month.

US average hourly earnings Source: Refinitiv
US average hourly earnings Source: Refinitiv

Participation rate

The cost-of-living crisis underway in the US does raise expectations that inflationary pressures will push people back into work, with the participation rate expected to push higher as a result. However, we are yet to see that take shape, with the participation rate falling back over the past two months. However, there is hope that this will reverse, with markets forecasting a rise back into 62.2%. The upward trend seen over the past two year is also reflected by the ratio between U-6 unemployment (% of those looking for work) and U-3 unemployment (% of all workers).

Participation rate Source: Refinitiv
Participation rate Source: Refinitiv

Dollar index technical analysis

The dollar has been driving higher of late, with the index pushing through the July peak of 109.02 once again today. There is a good chance this set us onto the next leg higher for the greenback, with expectations of further Fed tightening and haven demand bringing support for the dollar. A break below the 107.27 level would be required to negate that bullish outlook.

Dollar Index Source: ProRealTime
Dollar Index Source: ProRealTime

Nasdaq technical analysis

The Nasdaq is expected to remain at the forefront of selling pressure as we move into a prolongued period of rate hikes and economic contraction. The index has been hit hard of late, and that is expected to continue unless the price rises through the 125.02 swing-high.

Nasdaq Source: ProRealTime
Nasdaq Source: ProRealTime

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Be ready to act on the next non-farm payrolls report

Explore the influence the non-farm payrolls report has on American markets ahead of the next release on 2 July 2021.

  • Which markets could be more volatile after the NFP report?

  • Why was the report introduced and what does it tell us?

  • Why is the report important for traders?

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