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US: Expect nonfarm payrolls to post a 330k gain - TDS

Analysts at TDS expect nonfarm payrolls to nearly fully give back its hurricane induced weakness and post a 330k gain.

Key Quotes

“Uncertainty, however, is high with scope for a surprise in either direction, but on balance data in the past week on ADP and ISM do reinforce our above-consensus forecast. Our forecast assumes a 200-250k drag from the hurricanes, which we expect to recover to a significant extent in October. Previous hurricane episodes such as Katrina episode suggest a complete reversal in payrolls could be delayed, yet we believe the 2017 experience should be different given that jobless claims have fully recovered.”

“With labor market indicators consistent with monthly payroll gains of 175-200k, October payrolls could easily print closer to +400k or higher. However, we are more cautious that the full rebound may not be realized until subsequent revisions, as has been the case in previous natural disasters. In addition, September payrolls have the potential to be upwardly revised.”

“We expect the unemployment rate to remain at 4.2%. Average hourly earnings are expected to print a relatively weak 0.2% m/m increase, though there is risk for a softer 0.1% rise taking into account calendar effects and hurricane distortions. That would push the annual pace lower to 2.7% y/y, or 2.6% y/y if downside risks are realized. Consistent with the November FOMC statement, the Fed is likely to look past any softness in this report that might be attributed to residual hurricane distortions. A solid pickup in payrolls and a low unemployment rate should reinforce expectations for a December rate hike.”

Foreign Exchange

With a lot of noise still embedded in this payrolls report, we think it will be rather difficult to extrapolate implications for the USD. From that perspective we see no advantage in positioning ahead of this release. With the USD on better footing than most majors and the Fed nearly fully priced for a December hike, we think there is more to lose than to gain for the USD. This will crucially depend on the wages metric, where we see the risk of a negative surprise. We eye USDJPY with 114.40/50 acting as a significant signpost for resistance and key barometer for broader USD/G7FX. Meanwhile, 113.00/25 will be key supports.”

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