US August non-farm payroll preview

Today NFP report for the month of August is to be published at 12:30 GMT from US.

What is NFP report?

• NFP or non-farm payroll report is the monthly statistics on labor condition in the US released by US department of labor statistics. The report comprises goods, construction and manufacturing sector companies.
• This report influences the financial markets deeply across asset class.

Key highlights –

• Last month report was a blockbuster with 255,000 gains.
   
• Change in private payroll has been 217,000 last month. Today expected 180,000.
   
• Total payrolls are expected at 180,000.
   
• Most vital component is wage growth, which recently has started showing some strength. Today it is expected to rise by 0.2 percent on monthly basis and 2.5 percent annually.
• Labor force participation rate still weak at 62.8 percent.
   
• Unemployment rate is expected to decline by 0.1 percent to 4.8 percent.
   
• Underemployment rate is expected to fall further from current 9.7 percent.

Impact –

• Volatility is sure to be on the card, post release.
   
• Any number above 200,000 would be considered as very good and investors will further push the odds of a rate hike, which is currently at 60 percent.
   
• While number below 150,000 will pose serious doubts over the strength of the labor market if wage growth drops too. In such a case, there could be big slide in the dollar.

Better than expected wage growth would be key to Dollar’s strength. Any wage growth above 2.8 percent will bring the focus on faster rate hikes. Better payroll can also boost sentiment for equities.

We, over the period, expect weakness in Dollar as current hike path isn’t sustainable to Dollar’s strength. Just a hike in September won’t be enough unless the whole policy path is upgraded. Compared to December 2014, the policy path is around 200 basis points weaker. The dollar index is currently trading at 95.72, up 0.06 percent for the day.