US: Nonfarm payroll growth to moderate to 170k in December - TDS

Analysts at TDS expect US nonfarm payroll growth to moderate to 170k in December after two consecutive gains north of 200k.

Key Quotes

“Payrolls are likely to give back some of their recent post-hurricanes strength and to slow to the current trend, which is running near 175k, at this stage of the cycle. We fade the upside surprise in ADP employment as payrolls have tended to underperform ADP on average in the month of December since the crisis.”

“We expect the unemployment rate to remain at 4.1% for the third month with risks skewed to the downside amid robust employment growth. It would take a significant (and unlikely) rise in labor force participation to push the unemployment rate higher. The jobless rate should dip below 4% during 2018, in our view.”

“We expect to see a stronger 0.3% m/m print on average hourly earnings, following disappointments for the prior two months. Calendar effects favor a somewhat stronger print for December, and so a larger monthly gain cannot be excluded. Still, the annual pace of wage growth will be held down by base effects, and our forecast suggests an unchanged 2.5% y/y rate. We do expect this pace to increase over the course of 2018 given a tightening labor market and anecdotal evidence from employers.”

“Foreign Exchange

• Our base case outcome for payrolls and wages will not be enough to halt the USD’s losses, especially with solid expectations already assumed for this print and optimism priced for a Fed hike as soon as March. The latter suggests the bar for a meaningful reversal in the USD is high. Indeed, US positive data surprises have neared extremes yet the USD continues to struggle. Against this backdrop, we think the USD might actually prove to be more sensitive to disappointment on both the jobs and wage front. We are cognisant however that several USD-pairs have neared key levels (see EURUSD for example), while some technical measures flag stretched.
• With this in mind, we will primarily be focused on the wage data, where we do see some upside risk. If realized this would manifest itself in a bounce-back for the USD. However, we think a residual bid will eventually prove fleeting. USDJPY is likely to be the most responsive to the data where the 112.00/113.00 range appears to be pivotal with 113.50 acting as additional resistance. EURUSD supports are located near 1.1950/80, while a sustained break above the local 1.2092 highs would open upside potential move towards 1.2250 in the coming weeks.”