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The buoyancy of nonfarm payroll growth has seemed at probabilities with other signs that the jobs market is beginning to sour. As a result, we look for nonfarm payroll growth to decrease noticeably in the months ahead, starting with December’s employment report showing hiring slowing to 205,000.
Demand for employees has started to roll over. Job openings and hiring plans have declined since the start of 2022, and the trend in layoffs is no longer improving. But the need for workers remains historically strong, in no small part because labour supply growth remains underwhelming.
Other gauges of hiring, including the household survey, PMI employment indices and the latest Quarterly Census of Employment & Wages, suggest that the labor market is cooling more than the recent payroll numbers indicate.
The data published by Automatic Data Processing (ADP) showed on Thursday that private sector employment in the US rose by 235,000 in December. This reading came in much higher than the market expectation of 150,000.
“In particular, if our above-consensus payrolls forecast comes to fruition: We are anticipating a very solid net gain in December at 350k.”
“On the other hand, the ISM surveys are likely to suggest output continued to lose momentum during the last month of the year. This is particularly the case for the manufacturing sector.”
“Lastly, we expect the December FOMC minutes to shed additional light on Fed officials’ policy views for 2023. Note that at the meeting the Committee signaled broad expectations for a substantially higher terminal rate this year.”
Analysts at TD Securities note that Friday’s December jobs report from the US will likely grab the most attention from market participants later this week.
