ON DECK FOR FRIDAY, AUGUST 7th
KEY POINTS:
- Markets await jobs reports
- Canadian jobs: upside, lower UR, cooler wages
- US nonfarm: mild, higher UR, steady wages
Iran and jobs may compete for attention in driving how markets end the week. Oil prices are slipping a touch this morning after yesterday’s gain that was driven by Iranian attacks on ships in the Strait of Hormuz and reports that Iran and Oman struck a deal that won’t allow US and Israeli ships to transit the Strait in future; meh, fly a different flag, or switch ships in transit. Treasury yields are a touch lower this morning ahead of nonfarm on some combination of lower oil and nonfarm expectations and with US equity futures moving gently higher alongside little change in the dollar including flatness to CAD. That could all change in one direction or the other after 8:30amET.
So bring it on. I offered my previews for US and Canadian jobs in Wednesday’s morning note here in lieu of a weekly.
Scotia’s house calls are for gains of 50k jobs in both the US and Canada with the usual uncertainty around volatile reports full of methodological quirks.
I won’t repeat the rationale behind the drivers of the calls in this note as we’re at the point of just seeing the numbers and doing the clean up.
CANADIAN JOBS — COULD MOMENTUM CONTINUE?
Briefly, the range of estimates in consensus for Canada’s jobs report is from 0k to 50k. There is no clear clustering of estimates within that range and there are no negatives. The median estimate is 20k and the mean is close to that at 17.6k with a standard deviation of 12.4k. The 95% confidence interval surrounding monthly changes in jobs is a whopping +/-57k which is wider than the whole range of estimates. Chart 1 shows that barring statistical quirks, there is more upside than downside to the report by applying expectations for seasonal adjustment factors driven by recent experience for months of July against a range of seasonally unadjusted changes in jobs drawn from a wide range of outcomes in past months of July.
As for the unemployment rate, most expect it to be unchanged at 6.5%. My estimate is 6.4% because labour supply has ground to a halt with a shrinking population as immigration policy tightens and the Labour Force Survey’s application of a twelve-month rolling average to the temp category of arrivals catches up to actual population trends.
Wage growth is likely to cool after a whopping 9% m/m SAAR gain in June.
Hours worked will inform GDP growth in July on the heels of a mild 0.9% q/q SAAR gain in Q2 which means that most of our tracking for a strong GDP rebound was likely due to a productivity surge.
US PAYROLLS — MILD WITH DOWNSIDE
Also briefly, the range of estimates for nonfarm payrolls cuts from a gain of 40k to a gain of 157k. Most estimates are clustered within about 60k to 115k. The whisper number on Bloomberg is 76k. I see greater risk of coming in weaker than my 50k rather than stronger. Chart 2 shows this by applying scenarios around recent seasonal adjustment factors for like months of July against a wide range of outcomes for seasonally unadjusted changes in jobs drawn from the wide range of experiences in past months of July. The median estimate is a gain of 80k with a mean of 88k, implying mild skewness. The standard deviation is 22.7k and the 90% confidence interval from the BLS is +/-122k.
As for the unemployment rate, consensus is roughly divided between 4.2% (unchanged) and 4.3% which is Scotia’s house call. Also keep an eye on wages that are expected to grow by 0.3% m/m SA.
Also be mindful toward revision risk to the prior month’s 57k rise and the gain of 129k in May; June’s initial nonfarm sample was unusually small and the pattern of late has been more toward negative revisions than positive ones. Sharp revision risk to June could be a big influence on the July estimate by affecting the jumping off point.
Hours worked will start tracking of Q3 growth after a mild 1.3% q/q SAAR increase in Q2. Hours have not grown by faster than this amount in over three years.
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