Analysts expect lower jobs growth

BY Janne Muta

|July 7, 2023

Even though analysts expect to see the jobs growth slowing down significantly from a month ago, the recent employment-related data suggests otherwise. The analyst consensus has pegged the number at 224K which would represent a substantial drop from the previous 339K new hirings. The number would also be well below this year’s average of 331K. Historically, the analysts have been too pessimistic so we would not be surprised if this happened again. The ADP report, the number of new unemployment claims and the S&P Global US Services PMI all point to the US labour market remaining tight.

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Strong jobs data could result in the Federal Reserve maintaining higher interest rates for an extended period. The strong labour market has been supporting consumer spending in the service sectors but the wage growth stagnation could indicate that the labour market could be relatively soon reaching its peak in terms of hiring. Let’s take a closer look at the data released this week.

The ADP report showed yesterday that the US private businesses generated unexpectedly an impressive 497K jobs. This was the highest increase since February 2022. This figure surpassed expectations of 228,000 jobs. Consumer-facing service industries experienced a robust performance in June.

However, at the same time wage growth remains stagnant, indicating that hiring may be reaching its peak. While the labour market has been strong and supporting consumer spending in the service sectors, it has also helped sustain a relatively high level of core inflation. Consequently, this could result in the Federal Reserve maintaining higher interest rates for an extended period.

The S&P Global US Services PMI was revised slightly higher to 54.4 from the preliminary reading of 54.1, indicating a continued robust performance in the services sector. The services experienced growth was solid, driven by improved demand and a strong increase in new orders.

Both domestic and foreign clients contributed to the growth of new business, with new export orders rising for the second consecutive month. Job creation occurred and businesses displayed a more positive outlook for future activity. Companies aim to expand their employment in line with these expectations.

Last week the number of new unemployment benefits increased by 12K (to 248K), which was in line with the expectations (245K). Claims remained significantly lower than historical averages and the peaks in June. Additionally, the 4-week average of jobless claims decreased to 253K, down from 257K in the previous week.

Continuing claims decreased by 13K to 1,7 million in the prior week. This was the lowest level in four months. This decline indicates better conditions for jobseekers to find employment and suggest the labour market remains tight.

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USDCAD has rallied nicely since our last report on the market. The pair bullish above 1.3285 but is now quite extended. Below the level, the market could move to 1.3210. Keep an eye on today’s NFP number and the following price reaction to see if the bullishness continues after the employment and earnings data are released. A strong employment number should in theory lead to further strength in the dollar.

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USDJPY has reversed the recent uptrend and is now more likely to trade lower. The market remains bearish below 144 and could trade down to 142.50. Above 144, look for a move to 145. Again, the market reaction to the NFP number is what counts.

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S&P 500

S&P 500 traded lower yesterday but remains bullish above 4228 in the daily chart. Below the level, a move to 4270 would be likely.

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Nasdaq remains bullish above the 14 663 support level. Below the level, look for a move to 14 410.

The Next Main Risk Events

  • CAD Employment Change
  • CAD Unemployment Rate
  • USD Average Hourly Earnings m/m
  • USD Non-Farm Employment Change
  • USD Unemployment Rate
  • CAD Ivey PMI
  • EUR ECB President Lagarde Speaks

For more information and details see the TIOmarkets economic calendar.

Trade Safe!

Janne Muta
Chief Market Analyst

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Janne Muta

Janne Muta holds an M.Sc in finance and has over 20 years experience in analysing and trading the financial markets.

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