FOREX TRADERS

[craddock]

Thursday, 03 August 2006 23:18:30 GMT
Written by DailyFX Research Team

US Net Change In Non-Farm Payrolls (JUL) (12:30 GMT; 08:30 EST)

Consensus: 145,000
Previous: 121,000

Outlook: Employers in the United States are expected to expand hiring for the second straight month after May’s upset of 92,000 jobs added. This number may support the belief that a slowing labor market is still enough to sustain economic growth at higher borrowing costs. This month’s jobless claims have shown that employers are still healthy enough to hold onto their workers as the amount of people who filed for benefits averaged 312,330 during the first three weeks of July and 307,600 in June. On a different note, wage growth is also expected to moderate to 0.3 percent from last month’s surprise jump, making it cheaper. Economists also note that companies do not need to add as many jobs because fewer people are entering the work force. Before his testimony to the Senate on July 19th, Bernanke stated that payroll growth of “more like 130,000 and possibly lower” will be sufficient for a stable economy. Another change for payroll predictions from the previous month’s release run up has been the shirking of other employment gauges. The manufacturing and service ISM employment components were largely overlooked, as was the surprising contraction in private company hires to 99,000 employees added. Many analysts and officials believe the non-farm payroll data could be the deciding factor in next week’s FOMC meeting where expectations for an eighteenth consecutive hike are split. Should payrolls disappoint, it could forecast slower consumer spending trends to come, and in turn cooler inflation that does not require further policy constraint.

Previous: The world’s largest economy added 121,000 payrolls in June, up from May but short of an expected 175,000. Hourly earnings rose 3.9 percent on an annual basis and the unemployment rate held near five-year lows at 4.6 percent. The report sent the dollar down, adding to speculation that the Fed would need to end its series of raising rates in order to prevent an economic downturn. Adding to inflationary pressures were hourly earnings, which rose 0.5 percent on the month when expected to rise by only 0.3 percent. The Fed is now between a rock and a hard place, with oil-induced inflation on one side and ailing economic expansion on the other. It is becoming more and more clear that the economy cannot handle further restriction from the Fed, so they will have to become more accommodative sooner, rather than later.