US: Expect a 120k print on September’s nonfarm payrolls - TDS

Analysts at TDS expect a 120k print on September’s nonfarm payrolls and suggest that Friday’s jobs report should be viewed cautiously in light of recent weather disturbances — particularly Hurricane Irma, which impacted the survey week.

Key Quotes

“The storms may impart a significant short-term drag on the payroll figures that should reverse in October; some estimates have suggested a sizeable drag of more than 100k. We lean to the more optimistic side of consensus since indicators have been consistent with payroll growth near 200-230k, while hurricane impacted jobless claims have come in better than expected. With a moderately negative impact from Irma, we look for payrolls to print 120k. We expect the unemployment rate to be unchanged at 4.4%, with upside risks due to the slowdown in employment growth.”

“Meanwhile, we expect average hourly earnings to post a 0.3% m/m increase, leading annual growth a tenth higher to 2.6% y/y. Perhaps somewhat counter-intuitively, the hurricanes could arithmetically impart some upside to the monthly print by reducing hours worked for salaried employees. Calendar effects also suggest risks are to the upside for September, though past disappointments suggest another downside surprise cannot be ruled out.”

“Given all the noise associated with the hurricanes, the Fed is likely to look past any significant downside to September payrolls and average it with the expected rebound in October to get a better gauge of the underlying trend. Wages thus are likely to get more attention both from the Fed and markets this month, and we see risks skewed toward a solid print for wage growth in September. We continue to expect a December rate hike provided hurricanes moothed data remain good enough.”

“Foreign Exchange

The hurricane impact introduces a high noise-to-signal ratio for this payrolls report. As such, we think this introduces two-way risk around the USD, though the durability of the move may be questionable given the Fed will likely discount it anyway and the December meeting already well priced. However, from a short-term trading point of view, we think the market is still in the midst of a positioning squeeze following overextended USD shorts, and we think a positive surprise might exacerbate the move higher and push several majors to challenge through key levels especially with forecast expectations/ distribution scattered but skewed towards the low end. For EURUSD, we are watching 1.1660 supports followed by 1.1590 (100-dma) with resistance spotted near 1.1800/25.”