What's expected

• Consensus estimate: +56K (range -25K to +121K)
• July: -23K
• June: +63K
• Private consensus estimate: +45K
• Unemployment rate consensus: 4.1% vs 4.1% prior
• Participation rate consensus: 61.4% prior
• Prior underemployment (U6): 7.9%
• Average hourly earnings y/y: expected +3.0% vs +3.2% prior
• Average hourly earnings m/m: expected +0.3% vs +0.1% prior
• Average weekly hours: expected 34.3 vs 34.3 prior

August jobs data so far

• ADP employment report: +38K (lowest since January) vs +47K expected and +46K prior
• ISM services employment: 47.8 vs 47.4 prior
• ISM manufacturing employment: 51.2 vs 52.5 expected and 52.8 prior
• Challenger Job Cuts: 52,881 vs 33,429 prior
• Philly Fed employment: +27.9 vs +10.0 prior
• Empire State employment: +9.3 vs +11.4 prior
• Initial jobless claims, survey week: 206K vs 187K prior
• Revelio Labs: +36.5K vs +79.2K prior

Seasonal considerations

According to BMO, the headline reading tends to be weak in August. It has come in below estimates 71% of the time and above them 29% of the time, missing by an average of 71K and beating by an average of 18K. Similarly, of previous August unemployment prints, 36% have been higher than expected, 28% lower than estimates, and 36% have matched consensus.

August can be a difficult month for seasonal adjustments because of school start times, so market participants generally try to filter out educational jobs and look through them. This is one reason the August report has a history of large revisions in subsequent months, which is worth remembering when the initial print lands.

The broader trend

The jobs trend has been weakening lately, and last week's initial benchmark revisions unexpectedly shaved jobs through March. The benchmark revision process compares the payroll survey to state unemployment insurance records, so it is generally considered a more reliable read on the level of employment than the monthly samples. Still, unemployment is running at just 4.1%, and it is hard to see the situation as anything other than the oft-discussed 'low hire/low fire' economy, where firms slow hiring but hold on to existing staff rather than cutting headcount.

Market positioning

In terms of trading, the numbers hint at a soft report, which would place further pressure on the US dollar, already weakened by surprisingly dovish comments from Fed Governor Chris Waller on Thursday. USD/JPY has also been hit by intervention (though not confirmed) and plunged 330 pips on the day, leaving a turbulent dynamic for FX traders heading into the report.

In contrast, equities offered a more straightforward response to Waller's comments and are also benefitting from new AI model releases showing another leap forward. A softer jobs report would lift them further, while a hot reading could spoil the party.

Notably, Waller himself downplayed the report's significance: "I don't expect that the employment data will deviate much from what we have been seeing. So my decision on the appropriate stance of policy will be heavily influenced by what we learn about August inflation," he said.

A clear place to look for clues is the front end of the bond curve, with US 2-year yields trading at 4.33%. For the moment, the market is just under 50/50 for a September rate hike. The next scheduled inflation reading will therefore carry at least as much weight for rate expectations as this payrolls print.