Jobless Claims, NFP Expectations As US Labour Market Gains Momentum

Private employers hired more workers than expected in February and data for the prior month was revised sharply higher to show strong job gains instead of losses, aligning with other reports that have produced a positive picture of the US labour market.

The ADP National Employment Report on Wednesday suggest that the economy is on solid footing as winter’s Omicron variant infections subsided. Still, concerns do exist about the report’s credibility because of the sharp upward revision to January’s data.

Private payrolls increased by 475,000 jobs last month. Employers added 509,000 jobs in January rather than laying off 301,000 workers as was initially reported. Economists polled by Reuters had forecast private payrolls rising by 388,000 jobs.

Huge revisions undermine ADP’s credibility, but with January’s 301,000 reported drop revised into a 509,000 gain, the ADP figures are as much noise than signal.

ADP chief economist Nela Richardson, however, said revisions were part of the process, drawing parallels with the Labour Department’s Bureau of Labour Statistics, which compiles the closely watched monthly employment report.

The ADP report is jointly developed with Moody’s Analytics and was published ahead of the BLS’ more comprehensive and closely watched employment report for February on Friday. It has a poor record predicting the private payrolls count in the BLS employment report because of methodology differences.

While the initial ADP estimate showed private payrolls fell for the first time in a year in January, the BLS reported that the private sector hired 444,000 workers, with large upward revisions to employment gains in November and December.

According to the ADP report, large companies accounted for almost all of the job gains in February, with employment at small businesses declining by 96,000, a potential red flag.

Businesses continue to report difficulties finding workers. The Fed’s Beige Book report on Wednesday showed “widespread strong demand for workers remained hampered by equally widespread reports of worker scarcity, though some districts reported scattered signs of improving labour supply.” The report was based on information collected on or before Feb. 18. There were a near-record 10.9 million job openings at the end of December.

Tightening labour market conditions are feeding into higher inflation pressures. Fed’s Powell told lawmakers on Wednesday that the US central bank would move forward with plans to raise interest rates this month, but Russia’s war against Ukraine had made the outlook “highly uncertain.”

Economists are expecting as many as seven rate hikes this year. Stocks on Wall Street were trading higher. The dollar fell against a basket of currencies. US Treasury yields rose.

A little fallout on the US labour market is expected, but there are major downside risks in the months ahead. These include a recession in Europe, even higher inflation because of rising energy prices, and the increasing likelihood that the Fed could be forced to raise interest rates so aggressively to combat inflation that the recovery stalls.

Indications are that companies maintained a strong pace of hiring in February. Data from Homebase, a payroll scheduling and tracking company, showed substantial increases in the number of employees on the job as well as hours worked in mid-February.

Shift work in February recorded its largest monthly gain since the spring of 2020. The workforce management software company said the surge meant that the impact of the Omicron variant of COVID-19 on hourly shift work was over.

That aligns with expectations for another month of solid employment gains in February. Nonfarm payrolls likely increased by 400,000 jobs after rising 467,000 in January, according to a Reuters survey of economists.

USD/JPY retraces the decline from earlier this week to track the rebound in longer-dated Treasury yields, and fresh developments coming out of the US may fuel the recent advance in the exchange rate as the Non-Farm Payrolls report is anticipated to show a further improvement in the labour market.

The Russia-Ukraine war will do little to derail the FOMC from normalizing monetary policy as Powell pledges to be nimble in responding to incoming data and the evolving outlook, and it remains to be seen if the central bank will adjust its exit strategy as the NFP report is anticipated to show the economy adding 400K jobs in February.

NFP data may push USD/JPY towards the weekly high (115.78) as the update is anticipated to show a further improvement in the labour market, and the exchange rate may stage another attempt to break out of the opening range for 2022 as market participants brace for higher US interest rates.

ADP national employment rises by 475K vs 388K estimate. The nonfarm payroll estimate to be released on Friday is expected to show a gain of 440 K

Last month the NFP report showed a gain of 467K. The revision this month moved from -301K to +509K puts the data more in line with the BLS data. US ADP Employment Change rose past 388K forecast to 475K for February, which in turn raised hopes for a firmer US Nonfarm Payrolls (NFP) when released on Friday.