Payrolls eyed for signs of earnings growth

Potential cracks in apparently frozen wage growth are among key watch points for payrolls

Frozen wages may crack

More potential cracks in apparently frozen wage growth are among key watch points for December’s monthly U.S. employment report.  Economists’ forecasts average around 180,000 for the headline non-farm payrolls number after a weaker-than-forecast 148,000 for December.

Trend strong, signals mixed

The usual data points and trends investors typically scan in the lead up to Friday’s figures have thrown off mixed signals. Chiefly, we point to the employment index of the U.S. Institute for Supply Management’s (ISM) monthly manufacturing industry report missing expectations, on Thursday. At the same time, the New Orders component of the ISM’s services sector survey data dipped to the lowest since 2016. The main index also missed forecasts.  Private payrolls as gauged by ADP however, were above forecast, more in line with the undeniably robust U.S. labour market fundamentals seen over the last several months, leading some large market participants to notch their forecasts for January as high as 230,000.

Earnings growth?

With the glacial pace of average earnings growth in the spotlight after recent spikes, wages will also particularly be in the spotlight for January’s data. Some investors are looking for potential further uplift on the earnings front after more employers began federally mandated minimum wage increases this month. Consensus for average earnings growth is for a 0.3% rise on the month as per last month and year-on-year, a 2.6% rise after December’s gain was a tenth of a percentage point less.

Market reaction – stocks – dollar - Treasurys

With a perceptibly shaky day for shares in the U.S. on the cards, stronger than forecast jobs data could certainly swing stock indices around from their current state that is deep in the red. On the other hand, with equities moving inversely to the dollar this week, as it attempts to bounce from multi-month lows, a strong jobs report could reinvigorate the greenback to the detriment of shares. Treasurys have also reacted markedly to this week’s data, with 45-month highs in 10-year yields paring back on account of softer economic indications. If payrolls are more of the same, they could bring another Treasury yield pause. That could benefit stocks.

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