REPEAT: MNI 5 THINGS: US July Payrolls Seen +190k, Upside Risk

Repeats Story Initially Transmitted at 19:00 GMT Aug 2/15:00 EST Aug 2

By Shikha Dave and Harrison Clarke

     WASHINGTON (MNI) - Analysts expect the July U.S. employment report,

scheduled for release on Friday morning to post a slightly more modest gain than

in June, with a median estimate for a gain of 190,000 for headline payrolls and

a 200,000 gain for private payrolls. 

     Analysts also expect average hourly earnings to rise 0.3%, the average

workweek is expected to remain at 34.5, and unemployment rate to fall back

slightly to 3.9%.

     Ahead of the release on Friday, we outline five themes for particular

attention.

--MARKETS AND ANALYSTS AGREE ON AVERAGE HOURLY EARNINGS 

     Both markets and analysts are expecting average hourly earnings to increase

by 0.3% in July. In the past year, market and analyst forecasts for average

hourly earnings have been the same only four times and accurate just once.

Markets have overestimated AHE by an average of 0.16pp and underestimated it by

an average of 0.23pp in the last year, while analysts have overestimated it by

0.11pp and underestimated it by 0.13pp. Additionally, since July 2017, markets

have overestimated average hourly earnings five times and analysts have done so

six times. This compares to three underestimates for both markets and analysts,

suggesting a slight downside risk for AHE in July.

--ANALYSTS EXPECT SOFTER PAYROLLS GAIN THAN MARKETS 

     Although markets and analysts agree on a forecast for a 0.3% increase in

average hourly earnings, they expect different growth for headline payrolls.

Analysts are expecting a softer gain of 190,000 in July, while markets are

anticipating an increase of 204,000 for headline payrolls. In the last year,

both analysts and markets have overestimated headline payrolls six times and

underestimated it seven times. The average overestimate for markets tends to be

larger than that for analysts, but their average underestimates are more similar

and smaller with the exception of February, with markets averaging a 38,700

underestimate and analysts averaging a 42,400 underestimate. Given the

relatively small misses recently, it is possible that any miss from the actual

number could be small for both analysts and markets.

--ANALYST HISTORY SUGGESTS UPSIDE RISE ON JULY PAYROLLS 

     Over the past ten years, analysts have made four overestimates and six

underestimates of July payrolls. Through that period, overestimates have

averaged 31,250 and underestimates have averaged 40,330, suggesting an upside

risk. This shows that analysts tend to miss by a greater degree when they

underestimate. Additionally, analysts underestimated the May and June numbers

for this year, further indicating upside risk.

--ADP REPORT ANOTHER STRONG INDICATOR FOR BLS DATA

     Ahead of Friday's employment report, the ADP Research Institute's National

Employment Report indicated that private payrolls increased by 219,000 in July,

a bit stronger than analysts had expected. Although the report is derived from

ADP client companies' payroll data, its magnitudes ofter differ from those in

the BLS report. Over the past year, the ADP report underestimated gains in

employment eight times and overestimated it five times, with an absolute average

miss of around 50,000, a relatively large gap from the BLS private payrolls

figure. Still, the recent ADP numbers suggest a slight upside risk for private

payrolls, and by extension the headline figure.

--WAGE GROWTH MAY SEEN A BOOST

     Analysts agree that wage growth should accelerate to 0.3% in July. The

unemployment rate, which is forecasted to fall from 4.0% to 3.9% in July, is low

enough to warrant increases in wages. However, while a tight labor market is

generally a positive indication of wage growth, analysts are looking to the job

quits rate for further insight. Higher job switching rates is an indication of

competition for skilled labor and pressure to retain current employees. This

month, the JOLTS quit rate reached 2.4%, the highest rate since April 2001,

supporting analysts' expected increase in wage growth.

--MNI Washington Bureau; +1 202-372-2121; email: shikha.dave@marketnews.com

--MNI Washington Bureau; +1 (973) 494-2611; email: harrison.clarke@marketnews.com