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Non-Manufacturing PMI & ADP Payrolls To Keep Pressure On USD

ADP payrolls could be a precursor to Friday's NFP report

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The markets are heading into a busy second half of the week with still a lot of data due to come over. Today, the non-manufacturing PMI report from the Institute of Supply Management will be coming out.

This is followed up by the ADP payrolls report that is due tomorrow. The dataset is likely to shape the expectations of investors as we head into Friday’s payrolls report.

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It will also set the base for shaping the expectations of investors on how the US economy might have performed in the first quarter of this year.

In the backdrop of the recent market talk about an inverted yield curve, the ISM’s non-manufacturing PMI will gain even more prominence. Market watchers are divided on whether the recent inverted yield curve is a precursor to recession.

The incoming data will likely shed more light on this.

Non-Manufacturing PMI Forecast to Ease to 58.7

Economists forecast that the ISM’s non-Manufacturing PMI will fall to 58.7 in March. This follows February’s increase in the index to 59.7. In February, non-manufacturing activity rose by 3 points. The data beat expectations of 57.3.

The data was surprising as the gains were led by a rebound in new orders. February’s non-manufacturing PMI reading was the highest jump on a monthly basis this year. Various measures of new orders and business activity rose to a 13-year high.

All the 18 industries in the survey reported growth. Businesses were optimistic that consumer demand for the services sector will rise. This also comes as the effects of the December/January partial government shutdown starts to fade.

The only blip in the data was the employment gauge. The employment gauge fell to an eight-month low although staying at historically high levels.

There was a jump in the measure of backlogs leading to an increase in delivery times for the first time since October last year.

February’s NMI report shows that the overall economy from the services sector perspective was growing but at a slower pace.

Therefore, it is likely to see that the index could possibly come out lower when comparing to February. But at the same time, most of the respondents had concerns about the partial government shutdown, which could see the outcome in either direction.

ADP Payrolls Forecast to Jump 184k in March

The ADP payrolls report for March is also on the tap this week. Economists expect that the private sector added 184k jobs in March. This marks a slightly higher increase comparing to February.

However, the February data could see downside revisions. This comes as the US nonfarm payrolls report saw the small job gains being added during the month.

ADP payroll
ADP National Employment change, February 2019

In February, the ADP payrolls report saw the US economy adding 183k jobs in the private sector. The report which is released by Automatic Data Processing Inc. and Moody’s Analytics saw broad-based gains across all sectors.

It was only the education sector that shed 2000 jobs during the month. Job gains in the private sector came with business services leading the way, followed by health services and construction.

The average pace of job creation in 2018 as measured by the ADP/Moody’s stood at 219k while the first quarter average in 2018 was 228k. As of the February report, the average currently stands at 242k. Therefore, despite a weaker reading on the data, the overall trend is likely to remain above the averages.

If the ADP payrolls report meets the expectations, it would still keep the three-month average well above the previous levels.

However, the markets could see a knee-jerk reaction if the data disappoints. Investors will be focusing on the revisions to the previous month’s data which remains a wildcard if we get to see a weaker pace of job creation in March.

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