As the world awaits tomorrow's "most important jobs data ever" on the basis that it alone will decide the path of The Fed's data-dependent rate decisions and thus the tightening of financial conditions across global markets, there is one chart that everyone has to see…
August NFPs have been weaker than consensus expectations in each of the last 5 years and in 14 of the last 18 years of available data.
And furthermore, going back 25 years, no month has produced less jobs than August…
h/t @RyanDetrick
Which could be a problem, because, as Bloomberg reports, while the focus was on Yellen’s statement that the case for an interest-rate increase “has strengthened in recent months,” she followed with new language that the central bank’s decisions depend on the degree that data “continues to confirm” the outlook.
That, and other recent remarks by Fed officials, suggest that job gains need to be merely solid — rather than extraordinary — to warrant raising borrowing costs for the first time in 2016.
After global developments and weak May employment derailed Fed rate-hike plans earlier this year, U.S. payrolls surged in June and July, and economists expect Friday’s Labor Department figures to show a gain of 180,000 in August, in line with the average for 2016. That would provide evidence the economy is on steadier ground and faster wage gains are coming, context that some Fed officials have been waiting for.
“Unless there’s a massive disappointment, the bar seems pretty low for the Fed,” said Laura Rosner, a senior U.S. economist at BNP Paribas in New York. Yellen’s language “gives the impression that the indicators and the data are already consistent with the outlook, and they want to see that confirmation continue. And so it doesn’t mean things need to ramp up and accelerate way above and beyond what we’ve seen.”
And if the odds play out, it will be a disappointment…
Two potential issues complicate the report:
One, the payrolls data have been cursed in August, with the survey median undershooting the first print for the month in each of the last five years, by an average 47,000.
“At least over the last few years there’s a few guarantees — there’s death, taxes, and a disappointing August first print,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania.
Culprits include low response rates in a popular vacation month and difficulty adjusting for seasonal effects at the start of the school year. Even so, four of those last five Augusts looked better by the time the Labor Department released its final estimate. From 2011 to 2014, they were revised up by an average of 94,000 between the first and the latest prints.
The second issue is that wages could be subject to a calendar quirk. The report’s survey week doesn’t include the 15th — a payday for many workers — and that pattern frequently has resulted in weaker average hourly earnings growth.
In the past five instances of this calendar makeup over three years, average hourly earnings showed one monthly decline and four unchanged readings, Morgan Stanley’s Ted Wieseman said in a research note. The Bureau of Labor Statistics and Bank of America Merrill Lynch each point to research that shows the calendar pattern doesn’t result in a statistically significant impact on the wage figures.
But realistically – only one thing matters – Is The Dow more than 3% from record highs? If "yes" then 'hold rates'.
via http://ift.tt/2bHm5R7 Tyler Durden