ON DECK FOR FRIDAY, JUNE 6
KEY POINTS:
- Global markets await nonfarm, Canadian markets await local jobs
- Nonfarm payrolls preview
- Canadian jobs preview
- RBI shocks with 50bps cut
- Eurozone GDP revised up with soft drivers
- Russian central bank delivers expected 100bps of easing
It’s spin the wheel time, folks! Global markets await nonfarm payrolls as Canadian markets face the added twist of a local jobs report. Global asset classes are behaving about as one would expect ahead of it all with few material changes that could spin on a dime.
Other overnight developments were light. There was a surprise 50bps rate cut by the RBI with 25bps expected but an indication that leans toward a neutral bias now. Russia’s central bank cut by the expected 100bps moments ago. Eurozone Q1 GDP was revised up to 0.6% q/q SA nonannualized which was double the initial estimate, but it was soft quality in terms of details (low regional breadth, temporary tariff front-running effects, consumption revised lower).
US nonfarm payrolls and Canadian jobs arrive at the same time for the month of May. With fingers firmly crossed, I expect the US headline to be more resilient than the distorted Canadian one but the high statistical noise and quirks in both reports always requires caution. Details will matter for both, but especially Canada.
CANADIAN JOBS PREVIEW
The May Labour Force Survey from Statistics Canada arrives at 8:30amET. Here is an outline of where the collective views stand and what I think could be the drivers.
Median consensus: -10k
Average consensus: -9.5k (ie: no skewness)
Scotia: -25k
Range: -40k to +37k (most are negative)
Std dev: 18k
95% confidence interval: +/- 57k
UR: 7.0% consensus / 6.9% Scotia (6.9% prior)
Whisper: N/A in Canada
Drivers:
You will probably have to quickly look past the headline reading that is expected to be dragged lower by a reversal of temporary election hiring. 37k public administration workers were hired in April as two of the four advance polling days before the April 28th election fell in the LFS reference week. Public administration jobs commonly fall by 20–40k in the month following the last six elections before this one and this one had more hiring than ever (chart 1).
Beyond potential sticker shock are several other arguments. Youth employment may be a drag given weak summer job postings and the distortions to the summer job market that are due to very high numbers of temporary residents coming into Canada in recent years (chart 2).
Further, SA factors will probably subtract from hiring again. SA factors for like months of May have been low in recent years compared to history (chart 3). Each of January to April this year also had the lowest SA factors on record compared to like months in history. I don’t trust the SA factors and will offer alternative scenarios as usual, as I think Statcan is merely going with a recency bias when calculating SA factors that isn’t clearly suitable to today’s conditions versus recent years that were distorted by the pandemic. This issue matters a lot; Statcan says 52k jobs were created so far this year up to April, but going with average SA factors for each month instead of historic lows would more than triple that tally.
US NONFARM PAYROLLS PREVIEW
The May establishment (nonfarm) and household survey readings on the US job market arrive at 8:30amET. Here is an outline of collective views and what I think could be the drivers.
Median consensus: 126k
Average consensus: 132k (ie: slight skewness higher)
Scotia: 180k
Range: 75k to 190k (most are negative)
Std dev: 22k
95% confidence interval: +/- 136k
UR: 4.2% consensus / 4.2% Scotia (4.2% prior)
Whisper: 110k
Drivers:
As for tariff effects, be careful. Services are much less affected than manufacturing and services account for 71% of payrolls. Manufacturing is just 8%. Further, May could still have had some tariff front-running effects on sales and support in affected sectors including the number of workers as inventories and supply chains take time to adjust. Services like retail probably saw minimal price changes in the May reference week (household survey ) and reference period (nonfarm) but the price hikes are now starting to come through and yet it’s in the context of strong income gains that could still keep consumers spending and hiring resilient.
May is normally a seasonal up-month for hiring and comes on the heels of little evidence of a weather distortion to the April base effect that if anything slightly depressed April’s reading.
SA factors are expected to overstate headline payrolls as the SA factor for the past five months of May have all been the highest in history compared to like months of May (chart 4).
Since payrolls count jobs instead of job holders, the climate of economic uncertainty may continue to motivate double counting of more positions as the number of multiple job holders trends higher.
US economic growth appears to be resilient and is highly correlated with employment growth over time.
We’re waiting for the shoe to drop on federal government employees in the payrolls report given the contested DOGE firings, but state and local government hiring could easily continue to be offsetting.
A bigger risk may be when layoffs outside of government begin to show up in the data but they may not yet be large enough to sink payrolls. I might have gone higher if not for this consideration.
Strike effects on payrolls are likely to be minor given only 7k workers on strike in April.
I’ve had several accounts ask whether this week’s US labour readings impact my estimate. I don't see a compelling reason to change it. ADP throws a lot of head fakes and is too heavily slanted toward larger employers to be useful. Other readings seem mixed and have weak track records at lining up with nonfarm. JOLTS openings were decent, ISM-employment readings netted out ok, and Challenger layoffs has seasonality issues but those numbers came off and it's too uncertain how to distribute the layoffs over time anyway. But none of them are great at predicting nonfarm's unique methodology including double counting issues, SA quirks etc.
In any event, there are very wide confidence bands around US payrolls estimates and I always put emphasis upon this. I guess my #1 ranking for nonfarm payrolls indicates that I’ve been better at playing within the wide bands than others over time, but on any one individual reading there is high uncertainty at all times. Nonfarm’s 90% confidence interval is +/-136k. Given this noise factor, I often feel that markets grossly overstate the significance of misses in the tens of thousands in either direction.
But will the numbers on either side of the border affect the BoC and Fed calls? Not in my opinion. I think they both want considerable amounts of data across various readings and particularly a series of inflation reports while recognizing that the reports have reliability issues.
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