NFP Preview: Forecasts from 9 major banks, moderate downward trend in job growth

We expect 200K new jobs and an unchanged unemployment rate of 3.6%. This would make it clear that the US economy did not slip into recession in July either. However, it is difficult to assess the risk of recession in the coming months on the basis of the labor market, as it is at best a coincident indicator. Certainly, however, the risk of recession would increase if labor incomes stopped growing because this would hit private consumption. The decisive variable here, i.e. the product of employment, average working hours and average hourly wages, is the index of 'aggregate weekly payrolls of all employees'. In June, labor income was still 0.8% higher than in May.

We expect payroll gains to slow slightly further to 200K in July. We expect growth in average hourly earnings to slow marginally to 0.3% MoM, which would cause YoY wage growth to edge lower to 4.2%.

We expect gains to have stayed above trend in July, registering a firm 260K increase. Payrolls have clearly lost momentum over the past year, but they remain above levels that are consistent with a gradual rise in the UE rate. In fact, we forecast the UE rate to drop again by a tenth to 3.5% following its unexpected jump to 3.7% in May, as we expect the participation rate to remain largely steady at 62.6% amid still strong job creation. Wage growth likely fell a tenth to 0.3% MoM, dragging the YoY pace lower at 4.2% from 4.4% in June.

We expect the unemployment rate to hold steady at 3.6%, and NFP employment to rise 185K in July. Labour markets remain firm, but we look for unemployment to drift higher during the second half of the year.

Hiring could have slowed if previously released soft indicators such as S&P Global’s Composite PMI are any guide but this may have been offset by a decrease in the number of layoffs. With these two trends cancelling each other, we expect job creation to have remained roughly unchanged in the month at 215K. The household survey could show a similar gain, something which would translate into a one-tick decline in the unemployment rate to 3.5%.

We look for job growth moderation in July with total NFP climbing by just 190K workers. We believe any gain above 150-175K jobs remains strong. Such a gain, overtime, supports further declines in the unemployment rate. Even with job gains slowing, we expect the unemployment rate to dip back to 3.5% in July from 3.6% in June. The reading in June is a rounded-up figure. We see gains in the number of jobs that imply the unemployment rate could still dip. Wages are likely to rise 0.3% for July. 

Initial jobless claims eased over the July survey reference period, suggesting that a healthy 185K jobs could have been created in the US. That’s in line with the climb in participation seen lately in the prime-age working group, which coincides with a drawdown of excess savings. Still strong demand for workers, as evidenced by elevated job openings, suggests that new labor force entrants are being absorbed quickly into vacant positions. The unemployment rate could have remained steady at 3.6%, while a rise in participation also would have left more room for hiring without putting additional upwards pressure on wages, which likely slowed to 0.3% MoM. We’re slightly lower than the consensus on hiring which could result in bond yields falling.

After the first downside surprise to NFP growth in 15 months in June, we expect a strong bounce-back in July job growth, with total NFP rising by 290K.  We expect average hourly earnings to again rise by 0.4% MoM, although this increase would be close to rounding to 0.3%. Note, however, that the Fed’s preferred measure of labor costs, the employment cost index, showed a modest slowing to 1.0% QoQ in Q2, in data released last week. We also expect the unemployment rate to decline further in July to 3.5%, as the unrounded unemployment rate was already very close to 3.5% at 3.57% unrounded in June with an unchanged participation rate at 62.6%.

We look for a softer, but still robust, addition of 210K new jobs in July as the labor market moves closer into balance. We also look for the unemployment rate to stay flat at 3.6%. Wages appeared to be cooling on trend, but faster-than-expected wage growth in June and upward revisions to prior months have forced a reassessment. Overall, we expect average hourly earnings to increase 0.3% over the month.