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We expect non-farm payrolls to show an increase of 195,000 in December , below the consensus estimate at 240,000. The expectation of a weaker number in December is due mainly to the very strong reading in November at 321,000 . Our trend model points to 235,000. However, non-farm payrolls are volatile and a strong number last time points towards a bit weaker number this month. Furthermore, the fall in ISM figures supports the December number being less than the average for the past six months (258,000). We experienced a significant fall in the December non-farm payroll from 274,000 in November 2013 to 84,000 in December 2013.
Once again, we forecast the unemployment rate will stay unchanged at 5.8% (consensus 5.7%) as we look for a rise in the labour force to compensate for robust employment . However, the trend in unemployment is clearly down and we could very well hit the Fed's long-term unemployment rate of 5.4% as early as Q2.
Hourly earnings should also be followed closely, as this is one of the key indicators for judging how much the US labour market is tightening. Recently there have been signs of rising wage growth after a long period of low wage pressure. The Employment Cost Index has shown stronger momentum and the hourly earnings in the job report rose 0.4% m/m in November. We look for a rise of 0.2% m/m in December in line with consensus.
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