Tomorrow, we get the first look at how the labour market is progressing in the second half of 2013 with the release of the July jobs report at 8:30 AM ET.
The July data are notable for two reasons.
First, many economists across Wall Street see the second half of 2013 (starting with July) as something of a “moment of truth” for the economy, so it will be important to see what the all-important nonfarm payrolls report has to say about the sort of second-half start the labour market is getting off to.
Second, and perhaps more applicable to financial markets, is the proximity of the July jobs report to the September FOMC meeting, upon conclusion of which Wall Street expects the Federal Reserve to announce a reduction in the pace of monthly bond purchases it makes under its quantitative easing (QE) program.
If the numbers come in better than expected tomorrow, the bond market could be in for another rough day, as traders price in heightened chances that the Fed will actually begin to taper QE in September.
So, what’s expected tomorrow?
Market economists surveyed by Bloomberg predict…
- 185,000 nonfarm payrolls were created in the U.S. economy in July, down from 185,000 in June.
- Private payrolls created were 195,000, down from 202,000.
- Manufacturing payrolls rose by 2,000 after decreasing by 6,000.
- The unemployment rate edged down to 7.5% from 7.6%.
Société Générale economist Brian Jones:
Several factors point to yet another above-consensus payroll print. The mean number of persons filing initial claims for unemployment insurance benefits dipped by 3,000 to 346,000 over the four weeks heading into the July canvass, hinting at a slight reduction in pink-slipping from June. Consistent with improved hiring, the total number of persons on all state and federal benefits rolls likely contracted by 180,000 between reference periods – the largest decline since February.
Real business conditions indeed improved between the June and July establishment surveys, with the Aruoba-Diebold-Scotti (ADS) Business Conditions Index moving into positive territory for the first time since December. We expect weather conditions to have little impact on the upcoming report. While temperatures remained warmer than normal in July, we expect the number of persons unable to work because of bad weather to be in line with the 31,000 average posted over the past five years.
BofA Merrill Lynch economics team:
The public sector is likely to continue to gradually shed jobs; we forecast a decline of 5,000 public sector workers. In contrast, the private sector should add 185,000 jobs. Job growth recently has been driven by leisure and hospitality as well as retail trade — two of the sectors with the lowest paying jobs and fewest working hours. This has sparked concern about a poor composition of job growth.
However, it has not seemed to reduce the aggregate work week nor lead to a decline in average hourly earnings. We did see a spike in part-time hiring last month, but the data tend to be noisy and it is the first month we have seen a decisive move higher. Elsewhere, we expect an increase in construction and manufacturing jobs; the latter had declined for the prior four months. The manufacturing surveys suggest a pickup in activity and hence job growth in the sector.
Credit Suisse economics team:
Technical issues should be behind the slightly slower pace of job creation. The biggest swing should come from leisure and hospitality, which added the most jobs for any major industry in June (75K). The pace of recent gains in this sector seems unsustainable, in our view, especially in the amusements/gambling/recreation sector.
Fundamentals continue to support solid employment expansion throughout the service and construction sectors, with the exception of manufacturing. Good readings from jobless claims, the better June ISM Non-Manufacturing Employment index, and the improving trend in ADP employment through June all provide support.
UBS economics team:
The strong trend in employment growth probably continued into July, consistent with the improved assessments of the labour market reported by consumers. In July, the University of Michigan consumer sentiment survey reported the lowest proportion of consumers hearing unfavorable news on unemployment since July 2007.
Gains in total payrolls have averaged roughly 200,000 during the last three, six, nine and 12 months. The trend in payrolls has been strong enough to further reduce the unemployment rate. We expect that the unemployment rate fell to 7.5% from 7.6% in July, 7.8% in the fourth quarter of 2012 and 8.7% in the fourth quarter of 2011.
Wells Fargo economics team:
We expect that nonfarm payrolls added 190,000 jobs in July. Initial jobless claims continued to decline on a four-week moving average basis, and manufacturing employment likely improved relative to the prior month. However, weaker gains in services are likely to push the headline number slightly lower. Despite the labour market improvement, the unemployment rate held steady at 7.6 per cent in June, though we expect it to fall to 7.5 per cent in July.