Jobless claims reported weaker economic numbers today after showing record strength two weeks ago. Before today, based on jobless claims we expected an upside surprise tomorrow which could boost markets. Now jobless claims' economic slowdown has us guess tomorrow's number will be more "inline-ish." That can still be supportive for markets.
Jobless Claims Showed Economic Weakness Today
Source: Trading Economics
Today's report is shown above reporting 268,000 jobless claims last week. That is a jump over the last few weeks which is a sign of economic weakness. Two weeks ago, however, it reported a 40-year record of strength.
We Now Expect Inline-ish NFP Tomorrow
The Fed and market's most important jobs number is tomorrow in non-farm payrolls ("NFP"). Markets move on this number and is the Fed and the market's underlying sign of economic health.
Jobless claims reports weekly. When we combine that weekly average we can estimate where NFP will be for the month. That's what matters.
Here's how we do that.
Any time you had weak jobless claims it was a sign of economic strength. Less people filed that they were unemployed. You can see in the table above that when jobless claims were weak NFP was strong and vice-versa.
This time jobless claims are down 2.6% on a four week average. That's roughly the absolute value change for jobless claims for each of the last two months. Using that would tell us NFP should be up from the month before anywhere from 8.5% (two months ago) to 15.7% (last month). That would mean NFP based solely on this should be 175,000-185,000. That is precisely the street average estimate of 180,000.
Upside Wildcard: ADP
ADP tells a different story. ADP reported yesterday and also tracks closely with the all-important NFP numbers. ADP would say we should expect an upside surprise tomorrow with the NFP report.
Let's look at the correlation over time.
You see above that over time the ADP line matches the NFP line. Whether jobless claims or ADP ultimately proves to be correct the NFP number tomorrow should be decent enough to support markets.
Who Cares About NFP?
The jobs market is the most important driver to the economy. More jobs drives more spending which drives business and cycles to drive more jobs. That's a business cycle. These data points tell us where the economy is in real time.
There appears to be still a lot of skepticism about the health of the economy. If jobs numbers prove to be steady it can debunk that skepticism and support markets.
Markets Chopping Around Waiting for NFP
The market has been chopping around maybe even waiting for NFP. That may be how important it is. If the numbers tomorrow are acceptable it should be a sigh of relief for markets.
We expect a decent NFP report tomorrow. There is no way to be precise on this but we expect that it should be supportive of markets. Taking in the data leading up to NFP, jobless claims and ADP, numbers should be fine. That matters because it may be the most important economic data point for markets and the Fed, period.
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