Payrolls day: eyes on wage inflation

Data this week from the US has offered some mixed signals. Employment via the ADP private payrolls number was strong, coming at 275k, well ahead of expectations. One cannot always see a direct correlation between the ADP print and the NFP number, but nonetheless it suggests another print at least in line with the 3-month average. Census hiring might skew the numbers to the upside – prepare for a 250k+ print this time as a result, which could cause a little volatility.

Meanwhile the Chicago and ISM PMIs were soft, coming in around their weakest in two years and suggesting some drag in some employment sectors.

Within the ISM numbers the Employment Index fell to 52.4%, a decrease of 5.1 percentage points from the March reading of 57.5%. The Chicago PMI also highlighted weaker employment, with the decline in demand and production matched by reduced demand for labour. The Employment Indicator fell to its lowest level since October 2017, and below the three- and 12-month averages.

Earnings focus

PCE figures meanwhile, shows spending accelerated at the fastest pace in almost ten years, rising to 0.9% in March after a 0.1% gain in February. Personal incomes, rose 0.1% in March. Inflation fell to 1.6% from 2%. All told there is perhaps a sense that wages are not squeezing higher as much as expected.

Unemployment shows tightness

On unemployment, initial jobless claims were steady at a seasonally adjusted 230,000 for the week ended April 27^th, after jumping 37k the week before, the biggest rise in two years. The four-month moving average of claims has inched up 6,500 to 212,500.

Last month marked a recovery in the headline number as the March figure climbed to 196k from the wobble in February. Wage growth however was much softer than expected, rising 0.1% MoM versus the 0.3% expected. This left annual average wage growth at 3.2%, short of the 3.4% expected which was printed the prior month.

Post-FOMC, the USD is firmer with a push off the 96 handle back towards the 98 handle. For a drive higher for USD we would like require a beat on wage growth more than anything else as big headline jobs number is easy to disregard month to month. In fact it’s hard to get quite as excited about the main NFP print these days, particularly as the numbers can be quite volatile month to month. Focus on the three-month average and the wage data. Also unemployment, should it fall further and highlight further tightening in the labour market will get the Fed’s attention.

GBPUSD is holding the 1.30 handle but a big number on wages may pressure the pair lower and a retreat to the 200-day line around 1.2960.

Consensus expectations

190k jobs created

3.8% unemployment

+0.3% wages