On Friday we have U.S. and Canadian employment. The Canadian report is important because Canada is an important trading partner of the U.S. so any slowing in Canadian employment may reflect of slowing cross-border trade. The consensus is for Canada to have a DECLINE of 10,000 jobs with the unemployment rate holding at 5.8 percent. From a global perspective, Canada is a good look at the continuing narrative about slowing global economy, which is significant as the New Zealand, Australian, European and Japanese central banks have used the slowing global economy as the reason for maintaining their current accommodative monetary policies. The Canadian dollar has been weak versus many of the key currencies so weak jobs should put more pressure on the Canadian dollar.
The U.S. data is expected to see an increase of 175,000 jobs but look for a major revision to last month’s very low number of 20,000. The overall unemployment rate is expected at 3.8 percent. The most watched piece of the employment report is as usual the average hourly earnings. Consensus is for 0.3 percent gain following upon last month’s 0.4 percent.
The AVERAGE HOURLY EARNINGS will be interesting to watch as an indicator because of what Chairman Jay Powell stated at his March press conference: The Fed is not concerned about WAGE INFLATION for its mandate is PRICE INFLATION. It will be interesting to see how the market reacts to a strong AHE now that Powell has lowered its significance. The yield curves OUGHT to steepen on a weak NFP with a strong AHE as the FED has pivoted to remain on hold.
Also, strong wage gains should begin to be a drag on stock prices as profits will take the brunt of higher wages gains. I urge patience, as always,
as let the algo headline readers react first and push prices to levels where value can be attained with low price risk. The GOLD and currencies will be volatile on weak data as the long dollar is a market favorite. Thursday’s GOLD action was interesting as the market failed to attack the 1280 area when it was in striking distance. GOLD actually climbed higher late in the session. Just some price action to be cognizant of heading into the jobs report.
Tags: average hourly earnings, Canada, Gold, nonfarm payrolls, U.S., wage inflation, yield curves
April 5, 2019 at 12:42 am |
With labor content as a percentage of total costs estimated to be about 70%, and Average Hourly Earnings on the rise above inflation rates, does this not portend higher prices in the future? Is not AHE now not a leading inflation indicator whereas in the past it was a lagging indicator? Won’t suppliers pass on increased labor and tariff costs to the consumer? And with more money in his paycheck, won’t that buoy the economy and GDP where the consumer comprises also 70% of GDP?
So how much weight will Fed governors (soon to welcome Herman Cain) give to our robustness versus the apparent slowdown in most other regions?
And finally, will the Trump Administration stimulus actions continue to be the locomotive for much longer. or does the potency run out in the next few months?
Lots of questions, no obvious answers. However Mr. Powell will be guided mostly by the markets wagging tail no matter what other obfuscations he presents at the Q & A. As well as brickbats thrown at him from 1600 Pennsylvania Ave.
April 5, 2019 at 9:18 am |
asherz, about those “brickbats”, after today’s NFP, Trump reportedly called for immediate rate cuts and switching from QT to QE:
https://www.marketwatch.com/story/trump-calls-for-fed-to-adopt-quantitative-easing-after-jobs-report-2019-04-05?siteid=bullytweet
April 5, 2019 at 9:46 am
Indeed… Trump boasts of his policies finally curing Obama era economic weakness, yet wants the same QE necessary during that low monetary base velocity era.
While the higher US savings rate noted below is repressing that velocity (https://fred.stlouisfed.org/series/M2V), there’s no reason to think that the Fed lowering rates is necessary right now. It’s likely just another sign that Trump takes normal policy evolution as a personal affront/attack.
April 5, 2019 at 8:52 am |
Hi Yra-
Excellent anticipatory note for this morning’s numbers… especially as AHE weakening along with US Participation Rate were weaker signs in the face of the ‘normalized’ NFP alng with the paltry upward revision to the February NFP. And that Canadian weakness is indeed telling on the Full-Time Employment drop.
Next read on the global economy will be Monday’s monthly OECD Composite Leading Indicators that have accurately projected consistent weakness since last Fall (http://bit.ly/2HbyPQR for our markup of the weak March release.)
Yet despite those weaker signs, US equities are also doing OK in the wake of stressor removal… especially the overnight offer from EC President Tusk to allow the UK a full year Brexit ‘flextension’ (http://bit.ly/2uQdJiA) along with Trump allowing another month for US-China trade talks, and shifting from immediate southern border closure to giving Mexico a year (!!?) to enforce its own border.
So as I have often asserted, take a bull trend that’s had a reaction and remove the stressors and… no secrets what happens next.
To asherz on AHE as inflation indication: That may be temporarily suppressed due to sharp increase in US savings rate after years at minimal levels… also evidenced by previous higher AHE being followed by weaker-than-expected consumer spending. Maybe people have finally found themselves in a position to save some money, and are taking advantage of that opportunity. We shall see.
Best-
AR
April 5, 2019 at 8:52 am |
I think Gold made a major bottom Thursday.
April 5, 2019 at 9:42 am |
Yra, according to the DailyFX Economic calendar, the consensus for CAD was an INCREASE of 6K, not a DECLINE of 10,000 jobs. The actual headline came in at -7.2K, thus being a data miss rather than a beat, as the NFP headline number beat. USDCAD has been up.
On the other hand, CAD AHE beat at 2.3% vs its 2.2% expectation and print last month (in contrast to the NFP AHE miss).
April 5, 2019 at 10:24 am |
Per today’s data and Peter Boockvar, the US manufacturing sector shed 6K jobs instead of gaining 10K as forecast. Retail and transportation also lost jobs. Government added jobs, accounting for most of today’s upside surprise in headline NFP. (Me: gov’t hiring also explains the variance between the NFP and ADP this week.)
The unemployment rate held at 3.8% only because 224K workers left the workforce. AHE slowed to its lowest rate since Sept, from 3.4% to 3.2% (still strong though).
April 5, 2019 at 10:29 am |
Labor participation rate was down.
September 29, 2019 at 4:31 am |
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Notes From Underground: Quick Note on Friday’s Jobs Report | Notes From Underground