US NFP Preview: 6 major banks expectations from August release

As we are closing in on the August month’s release of US Non-Farm Payrolls data, here are the expectations as forecasted by the economists and researchers of 6 major banks.

All the 6 major banks expect that the August NFP to post a reading in between 175K to 205K while they expect the unemployment rate to hover in between 4.3%-4.4% in August.

TDS

We expect August nonfarm payrolls to moderate to a 175k pace after registering a robust 209k gain in July, which left the six-month average little changed at 179k. While data are limited so far for the month of August, the past trend in survey and hard data indicators point to job growth well above its breakeven pace of roughly 100k. In August, we call for a small deceleration led by private services, which picked up by a strong 183k in July, and a potential contraction in mining jobs in line with the decline in rig counts. Manufacturing jobs are expected to maintain a steady pace near 10k. We expect the unemployment rate to be unchanged at 4.3%, with risks balanced as further improvement in labor participation cannot be excluded in the near-term. On wages, we expect a 0.2% m/m increase, taking in account unfavorable calendar effects that may bias the monthly gain downward. This rise should nonetheless lead average hourly earnings slightly higher on a year-on-year basis to 2.6% vs 2.5% previously. Overall, the combination of solid job growth and a pickup in wage gains argues for a hawkish report, though the market response will be tempered by concerns over low inflation and near-term political risks.

Nomura

We expect another strong month of employment gains with a forecasted 205k increase in nonfarm payroll employment, further tightening the labor market (Consensus: 180k). We expect the private sector to contribute 200k (Consensus 170k) and a 5k addition from government. We forecast a 14k increase in manufacturing employment (Consensus: 9k). Partly reflecting a calendar quirk in the establishment survey, we expect average hourly earnings to only increase by 0.1% m-o-m (Consensus: 0.2%) bringing the y-o-y rate to 2.51%. The strong increase in payrolls will likely reduce the unemployment rate but leave it unchanged on a rounded basis at 4.3% (Consensus: 4.3%). July’s unrounded unemployment rate of 4.349% sits just barely below 4.4% after rounding, providing some cushion for a decline without a drop in the headline. The labor force participation rate (LFPR) will likely remain within the range of 62.6-63.0% seen over the past 18 months.

Rabobank

Analysts at Rabobank suggest that an eventful week will conclude with the US publishing monthly Employment Report at 14:30CET and non-farm payrolls which are expected to rise 180k in August, down from 209k in July will grab the headlines. The main focus is likely to be on average hourly earnings for any signals that demand-led pressure on inflation may increase in the coming months. Despite unemployment falling below the Fed’s estimate of the NAIRU, wage growth has been sluggish and only a modest increase to 2.6% y/y in August from 2.5% y/y in July is anticipated. An upside surprise to earnings could potentially reignite market expectations that the Fed may deliver a Christmas hike (the implied probability of a hike in December is still low at 33.8%).

Westpac

Analysts at Westpac expect the US NFP to print 170k for August while unemployment rate is expected to edge up slightly to 4.4%. Nonfarm payrolls rose 209k in July following a 231k gain in June and a 145k increase in May. That leaves the average monthly gain for 2017 at 184k, broadly in line with that of 2016. Given we are now 'past' full employment, this is a very strong pace of job growth which should begin to ease. On this point, each of the business survey employment indexes did pull back in July, potentially signalling a softer pace of growth in August. Yet all remain well above their long-run average levels; hence, even if growth does slow, it will still remain robust. We expect a 170k gain in August. From the household survey, the unemployment rate is due for a participation-induced uptick to 4.4% from 4.3% in July. But, given the strength of household survey employment growth, there is every chance it will instead hold at 4.3%.”

BBH

Many economists had been braced for a slowing of US jobs growth as the expansion matures.  However, jobs growth in the first seven months averaged 184k, which is essentially the same as last year's average (187k).  Over the past three months, jobs growth has averaged 195k, and some reversion to the mean is expected.  Barring a significant downside surprise, the focus will not be on the job creation itself.  The key is average hourly pay.  A 0.2% increase in August would lift the year-over-year pace to 2.6%, which is the 12- and 24-month average.  It may require a stronger increase to have a sustained impact.

Danske Bank

Analysts at Danske Bank suggest that today all eyes will be on the US labour market report and focus will remain on the unemployment rate and wage growth as these remain crucial for the Fed's decisions on quantitative tightening. In line with the continued growth in employment, we expect further declines in the unemployment rate over time. However, we expect wage growth to remain around current levels for some time and to fail to show a significant pickup as the second round effects of several years with low inflation are dragging wage growth.

Click here to read more about the NFP preview from our Chief Analyst Valeria Bednarik titled “Nonfarm Payrolls Preview: it will be different this time”