US Payrolls Expected to Rebound Sharply in October

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Summary:

  • US economy expected to add 300k on average jobs in October
  • The hawkish forecasts come after September’s data that showed a decline of 33k
  • Average hourly earnings expected to pull back from 0.5% increase (m/m) registered in September
  • US unemployment rate expected to remain steady at 4.2%
  • NFP data could most probably convince markets that the Fed will be hiking interest rates in December
  • US dollar expected to maintain its gains on the above factors, heading into the final quarter of the year

 


The monthly jobs report from the US Bureau of Labor Statistics will be released today for the month of October. The data comes amid a distorted report for September on account of the hurricanes.

In September, BLS data showed that the US economy lost 33,000 jobs during the month. On the other hand, the decline in the jobs report helped to push the average hourly earnings strongly. Wages were seen rising 0.5% on the month. No changes were reported to the US unemployment rate which remained steady at 4.2%.

Following the decline of jobs in September, economists polled are forecasting that the US economy rebounded, adding 311k jobs for October. However, this strong forecast comes with the average hourly earnings falling. Wages are expected to rise just 0.2% in October, and the US unemployment rate is expected to remain steady for the previous month as well.

The October payrolls data is likely to suggest that the impact of the hurricanes were short-lived and thus the underlying employment rate and the pace of economic recovery remain untouched. The average hourly earnings on the year, is expected to slip from 2.9% that was registered in September to around 2.6% or 2.5% in October.

Strong GDP (preliminary) print already a boost for the US dollar

The payrolls data comes amid last week’s preliminary GDP report. Data showed that the US economy expanded at a pace of 3.0% in the three months ending September. This marked the best six-month growth in over three years and comes despite the disruptions to the economy in September.

Driven by consumer spending and business, GDP continued to grind at a steady pace. In the previous quarter, at final revision, data showed that the GDP expanded 3.1%. Household purchases of durable goods showed a picked up with an increase in business investment in equipment as well. Consumers pushed the spending to 8.3% at an annual rate. This was higher than the previous quarter’s print of 7.6%.

 

Tax Cuts?

President Trump is also expected to make an announcement on the proposed tax cuts. This was clearer after last week, the US House of Representatives managed to push through to make way for deeper tax cuts. The tax reforms have been one of the biggest talking points for Trump right through the campaign trail.

With the Republicans that control the House voting with a slim majority the blueprint for the budget for the year 2018 is expected to enable the tax legislation to be introduced in the near term.

Although a lot of negotiations remain both within the Republicans as well as the Democrats, it is quite likely that Trump will be able to get his way with the proposed tax cuts. This is most likely to see further positive reaction from the US dollar. The tax cuts are expected to boost the economy and most importantly put more spending money in the hands of US consumers.

The US dollar was seen starting the year on a weak note and remained subdued for the most part. However, with the US economy seen buzzing and the above factors adding to the positive outlook, we could expect to see the greenback attempt to recover part of the losses from earlier this year.

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