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NFP Expected to Rise at a Slower Pace in July

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The much-awaited monthly payrolls data will be coming out today. Forecasts point to payrolls rising at a slower pace this month. Economists polled expect that nonfarm payrolls will rise 160k in July.

This marks a slower pace of increase comparing to June’s headline print of 224k.

The US unemployment rate is however likely to fall to 3.6%, after rising to 3.7% in June.

The average earnings continue to remain stagnant, with estimates showing a 0.2% increase on the month in July.

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For the past few months, average earnings have remained well-anchored near the 3% yearly increase.

With inflation already tame, wages will continue to outstrip consumer prices. This will put more spending money in the hands of households.

U.S. Nonfarm payrolls
US Nonfarm payrolls

Today’s payrolls report comes on the backdrop of a number of other big-ticket items. Earlier this week, the Federal Reserve lowered the fed funds rate by a quarter basis point.

The central bank remains in a wait and watch mode. Besides inflation, the unemployment rate will also be another key factor for the Fed to watch out for.

Unemployment over the past few months has been somewhat shaky, compared to the strong stretch witnessed previously. This falls in line with the general view that the US economy is indeed slowing.

ISM’s Manufacturing PMI Sinks Further

Meanwhile, the ISM’s manufacturing PMI data showed the manufacturing activity for July fell to 51.2. This was the weakest pace of growth in nearly three years. The index is still above the 50-level which indicates growth in the manufacturing sector.

Amid the current backdrop, the question remains on whether there will be much impact from today’s payrolls report. While the estimates for July are lower, there is also the prospect of a downward revision to June’s data.

The ISM’s data showed that the employment index registered a reading of 51.7, which down by 2.8 points from June’s 54.5. The data suggested that while employment growth was rising, the pace was much slower.

This potentially indicates that the payrolls report will be somewhat in line with the estimates if now lower comparing to the numbers from the month before.

On Wednesday, the ADP payrolls data showed that hiring in the private sector rose 156k in July. This was slightly above the consensus estimates of 150k. The data for July showed that the labor market was still strong.

However, there were inherent weaknesses in the economy that was hitting the growth in the labor market sector.

Will the Payrolls Report Have any Impact on the Fed?

With the Fed staying less dovish than expected, today’s payrolls report could potentially change that view. Unless there is a strong negative deviation from the estimates, the report could simply be brushed aside.

To the upside, even if there is a strong positive deviation, we do not expect to see this impacting the monetary policy. The Fed is likely to simply wait to assess more data.

But it is unlikely that the payrolls will be strong enough for the Fed to hold back from further rate cuts. Today’s payrolls report will be one of the many ahead of the September Fed meeting. This is when the rate-setting committee will take further action on monetary policy if required.

Given the fact that the central bank has responded to slowing growth indicators, the data would simply justify the rate cut at some point in the future.

The trend in payrolls has been somewhat weaker over the past months. This coincides with the late business cycle. Although the risks of a recession is still a possibility, the Fed’s move to lower rates could help push the downside risks further down along the road.

The central bank is also quite likely to remain on the sidelines and wait for more incoming data before deciding on the next course of action.

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