This morning we saw the
ISM non-manufacturing figure
unexpectedly climb to 58.6 in August, up from 56.0 in July.
But it was the employment sub-index — which spiked to 57.0 from 53.2 in July — that has economists really pumped for Friday’s job report.
The ISM report has spurred UBS economist Drew Matus to up his firm’s call for Friday to 210,000 on payrolls (their earlier estimate was 170,000). Matus explains in a new note to clients:
Similarly, ISM employment indexes look consistent with payroll gains of around 300k per month (see chart on page 2). While the ISM employment measures are not the best m/m indicator of employment growth, they are certainly consistent with a strengthening trend. Taken with the continued improvement in jobless claims along with other recent positive labour-related data, we have pushed up our payroll forecast for August. We now expect 210k on payrolls (cons: 180k), up from our earlier 170k estimate. We continue to expect a pause in the unemployment rate at 7.4%, after a 0.2 pt drop in July. Initial jobless claims fell more than expected in the week of August 31: -9k to 323k (cons & UBSe 330k). The prior week was revised to 332k from 331k. A Labour Dept. analyst mentioned that three states estimated claims in the latest week, but that the estimated states had little effect on the drop. Smoothing through the weekly data, new claims have suggested further improvement in the labour market. The four-week average, at 329k, was down from 332k the prior week, 342k at the end of July and 346k at the end of June.
“For the ISM, the level continues to indicate a rebound in growth in H2 after H1’s sluggish performance,” Matus wrote.
Like Matus said, the median forecast for tomorrow nonfarm payrolls report is +180,000.