US jobs report preview: questions remain despite Trump’s promises

Friday’s US jobs report looks at risk given the recent ADP and jobless claims figures. Yet with Trump promising a big number, markets will be watching closely

The August US jobs report provides us with another opportunity to take a deep dive into the economic recovery that is underway after the historic coronavirus-induced economic collapse that took hold in the early part of 2020.

With volatility often near guaranteed, traders will be keeping a close eye out for the jobs data which will be released at 1.30pm on Friday 7 August.

ADP miss sounds warning for headline NFP release

The US jobs outlook has been improving over recent months, with the shocking -20 million payrolls figure for April being followed up by two months of job growth (totaling 7.3 million).

With plenty still unemployed from this pandemic, there is a hope that this is just the start of that ‘V’ shaped recovery. US President Donald Trump would certainly have you believe that we are going to see strong data come Friday, with the President claiming on Fox news that Friday would bring a 'big jobs number'.

However, we are seeing some signs that this economic recovery could already be stuttering if other jobs data is to be believed.

Firstly, we have seen a shift in direction in jobless data, with the last week finally seeing both initial claims and continuing claims rise for the first time since March.

That shift highlights a clear end to the improvements we have been seeing for the past three to four months. Unfortunately, that shift appears to be have had an effect upon the ADP non-farm payrolls (NFP) figure released today, with the release posting an underwhelming 167k (against the 1.2 million expected).

The caveat to that release is that we did see a whopping two million upward revision to the June ADP figure. Nevertheless, there are plenty of question marks around the upcoming NFP figure despite Trump's claims.

Given the weakness seen on the jobless claims figures, an underwhelming payrolls figure could bring to light the potential that the recovery has already stalled. Markets are currently looking for a figure closer to 1.8 million, compared to the 4.8 million reading last month.

Another key area of focus will be the unemployment figure, which is forecast to drop for a third consecutive month (10.5% expected from 11.1%).

With continuing claims now starting to rise, there is a chance we will see the decline in unemployment ease and potentially reverse. Of course much will be reliant on the ability to implement a new coronavirus bill, but as things stand the US economy is looking at risk if such a package cannot be agreed.

Finally, average earnings are expected to drop by another 0.5%, following a sharper decline of -1.2% month on month (MoM) last time around. To a large extent the average earnings figure reflects the types of jobs which have been impacted, with the closure of the services sector driving average earnings upward.

However, as long as we continue to see the monthly figure fall, it is indicative of a services sector that is coming back online.

S&P 500 technical analysis

Looking at the S&P 500, we have seen a continuation of the wider uptrend coming into play once again this week, with the index hitting a fresh five-month high. This is likely to continue as things stand, yet a weak jobs report could start to hurt US stocks.

With a poor jobs figure unlikely to improve the policy picture, markets are likely to take data at face value. As such, a bullish trend is in play here, where a break below the 3278 level would start to raise questions over the short-term outlook.

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