James Trescothick

Education Manager at easyMarkets. Passionate about the markets, the excitement, the story driving the markets at the time, the fundamentals and even the technicals.

U.S. nonfarm payrolls (NFP) are only hours away, and the financial markets are already zeroing in on the event. If the recently released ADP report is any indication, the world’s largest economy is poised for another month of solid jobs growth.

What Economists Are Saying about the NFP

Payrolls are expected to rise 185,000 in May, based on a median estimate of economists polled by Bloomberg News. In April, employers added 211,000 nonfarm workers, which was much higher than expected.

The unemployment rate is forecast to hold at a ten-year low of 4.4%. Workforce participation – the percentage of the labour market employed or actively searching for work – is unlikely to change very much from April’s 62.9%.[1]

Average hourly earnings – a barometer of inflation – are expected to climb 0.2% on month and 2.6% annually.

What ADP Is Saying about the NFP

On Thursday, the ADP Research Institute said U.S. private sector employers added a whopping 253,000 jobs last month, blowing past expectations of 185,000. The payroll process said the bulk of the gains – 205,000 to be exact – came from the services sector. Within services, professional and business activities contributed 88,000.

Among goods producers, construction added 37,000 workers for the month.

“Job growth is rip-roaring. The current pace of job growth is nearly three times the rate necessary to absorb growth in the labor force,” Mark Zandi, chief economist of Moody’s Analytics, said in the official press release. “Increasingly, businesses’ number one challenge will be a shortage of labor.”[2]

Zandi later told CNBC that, at the current hiring pace, the unemployment rate is quickly headed to 4%.[3]

Markets on High Alert Ahead of the NFP

The U.S. dollar rose briskly after the ADP report on Thursday, and could be headed for fresh gains should the official jobs report surprise to the upside. The greenback is highly sensitive to NFP data. However, it is unlikely to face heavy volatility unless any of the headline numbers deviate significantly from the consensus forecast.

Traders should also carefully monitor the earnings data, as this may influence the market’s perception about inflation and thus U.S. monetary policy.

The ADP report also triggered a record-setting rally on Wall Street, with the S&P 500, Dow Jones and Nasdaq setting fresh record highs.[4] European equities are likely to follow suit on Friday.

The NFP report will be released at 8:30 a.m. EST (12:30 GMT).

[1] Bloomberg. Economic Calendar.

[2] ADP National Employment Report.

[3] Jeff Cox (1 June 2017). “Private payrolls add 253K in May vs. 185K est.: ADP.” CNBC.

[4] Sam Bourgi (1 June 2017). “Dow Jones (DJIA) Futures Hit All-Time Highs Ahead of Nonfarm Payrolls.” Economic Calendar.

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