Market Overview

Non-Farm Payrolls Preview: Looking for a Beat

On Thursday, investors received data that showed employment growth may have rebounded in June. This data was released ahead of the much anticipated Non-Farm Payrolls report on Friday at 8:30 am est. For Friday's report, economists are expecting the economy to have added 93,000 jobs in June.

Non-farm payrolls rose only 69,000 in May and April's report was revised lower to 77,000 jobs added. However, a string of recent economic data may be indicating that June's report will show a rebound in employment.

On Thursday, the Department of Labor reported that initial jobless claims fell to 374,000 in the week ended June 29. This figure represented a decrease from the prior week's upwardly-revised 388,000 reading. The closely watched four-week moving average of initial claims fell to 385,000 from last week's 388,250.

As claims fall, economists predict that employment is improving. Other data supports this prediction. Since 2008, the 4-week moving average of initial jobless claims is approximately 80 percent negatively correlated to Non-Farm Payrolls, meaning as claims fall, Non-Farm Payrolls generally fall.

The ADP Employment survey also reported that the employment situation improved in June. The survey revealed that the private sector added 176,000 jobs in June, higher than the upwardly revised 136,000 reported for May. The ADP report is approximately 93 percent positively correlated to Non-Farm Payrolls, so the June increase is a positive signal for Non-Farm Payrolls.

Lastly, the ISM Non-Manufacturing Employment Sub-Index, a measure of employment growth in the services sector, rose from 50.8 to 52.3. The services sector makes up roughly 75 percent of the U.S. economy. Thus, employment growth in the services sector is a good sign for Non-Farm Payrolls.

Imputing this data into Benzinga's Non-Farm Payroll model reveals an estimate that is much higher than consensus. The model reveals that Benzinga's estimate is for +157,000 jobs added in June, well above consensus of 95,000. The consensus estimate does not take into account the stronger employment data released today and could increase ahead of the data release at 8:30 am Friday. Goldman Sachs increased its estimate by 50,000 jobs, from 75,000 to 125,000 after the strong employment data.

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