Private Sector Growth Slows
Looking ahead to tomorrow’s Non-Farm Payrolls release, there is plenty of scope for volatility. The ADP employment number released on Wednesday showed that over September, the US private sector created more jobs than was forecast but at a slower pace overall. This latest data adds to concerns that the labour market is getting tighter.
The headline APD figure showed that 135,000 new staff were hired over the month. This was above the 125,000 reading forecast by analysts though marked a sizeable drop from the prior month’s 157000 reading. Even the August reading suffered a heavy downward revision from the initial 195,000 number first recorded.
The 135,000 rise over September marks the slowest pace of private-sector monthly job gains since June and has lowered the 2019 average to 145,000 from the 214,000 seen over the same time last year. This is clearly a significant reduction and raises concerns over the health of the labour market.
The breakdown of the data shows that small companies were the hardest hit. Those companies with 50 or fewer employees recorded the slowest pace of hiring at just 30,000. Large firms (those with at least 500 employees) recorded job creation of 67,000 workers while medium-sized businesses added 39,000 workers.
On a sector by sector basis, education and health services recorded the largest gains with an increase of 42,000 workers. Following this was trade, transport and utilities which saw 28,000 new positions added followed by professional and business services which recorded a 20,000 increase in workers. Leisure and hospitality came last, contributing just 18,000 new jobs to the total rise of 127,000 jobs in the services sector. Looking at the production sector, construction was up by 9,000 jobs while manufacturing grew by 2,000 jobs. However, natural resources and mining were down by a combined 3,000 positions.
NFPs To Increase
The latest industry polls ahead of Friday show that the market is looking for a headline NFP increase of 140,000 jobs, up from the prior month’s 130k. This is a conservative estimate and highlights a more cautious outlook for the labour market. Should the NFPs undershoot expectations on Friday this could see USD long positions unwinding. The market is also looking for the Unemployment rate to remain unchanged at 3.7% while average hourly earnings are forecast to have ticked down to 0.3% over the month from the prior month’s 0.4% reading.
USD has been under scrutiny this week following a downcast ISM manufacturing reading on Tuesday which printed a second consecutive month below the neutral level. The reading has raised concerns over growing recessionary risks in the US and traders are now turning their attention to today’s ISM non-manufacturing print which is forecast to print 55.1. Any downside surprise here is likely to weigh on USD ahead of the NFPs tomorrow.
Technical & Trade Views
S&P500 (Neutral, Bullish above 2860, bearish below)
S&P500 From a technical and trade perspective. Price has now broken through former highs around 2938. I will be monitoring price action as we retest the yearly R1 at 2860 with momentum studies flagging risk of a reversal higher. However, with longer-term VWAP having turned negative, if we push through bids at these levels I will reassess on a move deeper.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!