With the UK on public holiday for Easter tomorrow (and also Monday for that matter), I will talk about Non-farm Payrolls today. One look at he UK equity markets and it it as though the usual consolidation that is saved for the morning of the payrolls data is happening today in Europe. There seems to be little appetite to take a position ahead of such a key piece of economic data to find that there is no opportunity to react until Tuesday (this is true at least for European equities). What could be in store for them when they return though?
The ADP employment is always taken as a harbinger of how the payrolls will come out. The ADP employment report showed a drop to the lowest level since January 2014 with a reading that was also back below 200,000. This was also the 4th straight monthly decline which is an unwanted trend for a labor market the Fed describes as “strong”. Below are the charts of ADP and Non-farm Payrolls in the past few years.
The correlation of linking ADP to Non-farm Payrolls is always a well used line around these times. The chart below shows a correlation of the two using a 12 month calculation period. The inference is that the correlation is good but has been deteriorating slight recently. Having seen the correlation improve in the period since September 2013, the it is now beginning to decline in 2015, however it is still fairly strong.
The consensus expectations of Non-farm Payrolls are always interesting. In the past 12 months, the actual has beaten the consensus on a total of 11 occasions. And the one time that expectations were missed, it was only by 10,000 jobs. The latest forecast (which has stayed stable despite the disappointing ADP number yesterday) is for 245,000 jobs to have been added in March.
The ADP employment data has clearly ramped up the pressure on the dollar in the past 24 hours. Gold and oil prices spiked higher yesterday, whilst the euro (and Swissy) has made a move higher today. However viewed across the forex majors basket the market is still fairly undecided or perhaps unwilling to take a view ahead of the Easter break. The Non-farm Payrolls data in recent months have remained strong in spite of forecasts that have been less enthusiastic. I would say that with the correlation between ADP and Non-farm Payrolls still fairly strong and the sharp disappointment yesterday, the number tomorrow could be close to expectation or even missing.
Oh, and I will leave you with one final chart to ponder. The chart of ADP and the ISM Manufacturing data are also fairly well aligned in recent months. Which does not bode well for jobs in the coming months with the forward looking ISM continuing to fall away.