July non-farm payrolls preview: ADP vs ISM edition

<p>Heading into last month's jobs report, we were looking for a 15th straight month of beating the consenus but it fell just short at +209K vs +225K expected. Here is what to look for this time.</p><ul><li>Consensus estimate +200K (range +140K to +300K)</li><li>Private +179K</li><li>February +311K</li><li>March +236K</li><li>April +190K</li><li>May +339K</li><li>June +209K</li><li>Unemployment rate consensus estimate: 3.6% vs 3.6% prior</li><li>Participation rate prior 62.6% </li><li>Prior underemployment U6 6.9%</li><li>Avg hourly earnings y/y exp +4.2% y/y vs +4.4% prior</li><li>Avg hourly earnings m/m exp +0.3% vs +0.4% prior</li><li>Avg weekly hours exp 34.4 vs 34.4 prior</li></ul><p>Here's the June jobs picture so far:</p><ul><li>ADP employment 324K vs 190K expected </li><li>ISM manufacturing employment 44.4 vs 48.1 prior (lowest since July 2020)</li><li>
ISM services employment 50.7 vs 53.1</li><li>Philly employment -1.0 vs -0.4 prior</li><li>Empire employment +4.7 vs -3.6 prior</li><li>Initial jobless claims survey week 228K vs 240K expected</li></ul><p>This is a big showdown between the extremely strong ADP reading and the soft ISM services data. Note that last month the ADP data was also very strong at +497K but it didn't filter through into the government release. This month, the ADP reading was high once again but the ISM services and manufacturing numbers showed a deterioration.</p><p>Seasonally, July payrolls beat the consensus 54% of the time with the average of beats at +96K and the average of misses at -60K, according to BMO. </p><p>In terms of risk assets, a reading of somewhere around 100-150K would be ideal as it indicates some cooling without indicating a looming recession. A fall to sub +50K would set off some alarm bells about economic strength but could also be seen as positive because it would mean the end of the rate-hiking cycle.</p><p>What I wonder is how a negative reading would look. I'm inclined to see risk assets falling but there's a good argument that yields would fall on such a reading and that would be enough for risk assets. Moreover, it could still be seen as something of a one-off for the economy after many months of strong jobs gains.</p><p>For the FX market, it's far more straightforward for something like USD/JPY as something soft would lead to selling and something strong would lead to buying.</p>

This article was written by Adam Button at www.forexlive.com.