US: Looking for an above-consensus 225K print of NFP - TDS

Analysts at TDS are looking for an above-consensus 225K print of US NFP for February, from our original forecast of 205K.

Key Quotes

“While we acknowledge a somewhat tenuous link between ADP and payrolls, the magnitude of this week’s positive surprise—in conjunction with continued very low initial claims numbers and other supportive indicators—lead us to expect a modestly better job creation number for Friday's nonfarm payrolls.”

“Labor market indicators across the board point to monthly payroll gains north of 200k—a step up from the recent trend as indicated by the 3- and 6-month moving averages. February ISM and regional employment indices in particular showed healthier readings consistent with a pickup in payroll growth. Jobless claims held near previous lows in February and the Conference Board labor differential (“jobs viewed as plentiful” less “hard to get”) remained supportive. While we would expect job growth to slow as we reach full employment, 200k+ gains cannot be excluded in the near-term.”

“By industry, a solid showing by the ISM non-manufacturing employment index should support a strong pace in private services employment, following its pickup in January. Manufacturing and mining jobs also should lend positive contributions, as presaged by another strong ISM manufacturing employment index and a further advance in the US oil & gas rig count. One downside risk is the 90- day hiring freeze of federal government workers, signed on January 23. Some estimates suggest between 15-30k jobs that would have opened up will remain unfilled in this period.”

“The unemployment rate is expected to slip back to 4.7% from 4.8%, which would likely be accompanied by a pullback in the labor force participation rate. We also expect a 0.3% m/m pickup in average hourly earnings in February, leading the year-on-year pace higher to 2.7% vs 2.5%. With the reference week ending on a Sunday, calendar week distortions suggest at least a solid 0.2% m/m print. But coming after the relatively weak 0.1% increase in January, which was partly driven by an unusual 1.0% m/m drop in financial activities, there is scope for a stronger bounce back.”

“Foreign Exchange

In light of market pricing for the Fed and broader US fixed income dynamics, the USD could be more prone to retracement risks should the data disappoint than outperformance should the data reaffirm our forecast. In the former scenario, unless a negative surprise is so large to alter Fed expectations, we would expect losses to be capped however. We would nonetheless enter payrolls with the mindset that the USD should remain firm and see USDJPY test 115.50/60 pivot again, though we are less inclined to see it punch through. Instead, we think there is more scope for USD outperformance against CAD, particularly as the simultaneous release of the Canadian jobs report should be soft. We think this dynamic will see USDCAD re-test (for the third time) 1.3600 with an extension risk towards 1.3650.”