ADP employment expected to show a solid increase — The market consensus is for today’s June ADP employment report to show a solid increase of +188,000, although that would be down from May’s strong report of +253,000 jobs. The ADP report has been strong in recent months with a 3-month average monthly gain of +227,000 jobs.
The Labor Department’s payroll report, by contrast, has been substantially weaker than the ADP report. Payrolls have shown an average monthly increase in the past 3 months of only +121,000 (March +50,000, April +174,000, May +138,000). The consensus for Friday’s June payroll report is for an increase of +177,000, which would be closer to the 12-month trend average of +189,000. The recent weakness in the March-May payroll reports has raised some questions about the strength of the U.S. economy. Still, a downshift in hiring is not surprising given that the economy is now near full employment after producing 16.4 million jobs since the Great Recession.
Unemployment claims remain favorable near decade-plus lows — The U.S. unemployment claims data shows that layoffs remain near decade-plus lows, indicating a strong labor market where businesses are holding on to their current employees. The initial claims series is only +17,000 above the 44-year low of 227,000 posted in February and the continuing claims series is only +49,000 above the 29-year low of 1.899 million posted in May. The market consensus is for today’s initial claims report to show a small -1,000 decline to 243,000 (after last week’s +2,000 to 244,000) and for continuing claims to show a -8,000 decline to 1.940 million (after last week’s +6,000 increase to 1.948 million).
U.S. ISM non-manufacturing index expected to show a modest decline but remain generally strong — The market consensus for today’s June ISM non-manufacturing index is for a decline of -0.4 to 56.5, adding to May’s -0.6 point decline to 56.9. Expectations for a decline in today’s ISM index are based in part on the already-reported news that Markit’s preliminary-June U.S. services PMI fell by -0.6 points to 53.0. Today’s final-June Markit U.S. services PMI is expected to be left unrevised from the early June level of 53.0.
Despite expectations for a -0.4 point decline today, the ISM non-manufacturing index remains in relatively strong shape at only -0.6 points below the 1-1/2 year high of 57.6 posted in February. U.S. business confidence has recently cooled somewhat following the post-election surge, but still remains in decent shape with businesses still expecting a relatively strong economy.
U.S. trade deficit expected to remain wide — The market consensus is for today’s May U.S. trade deficit to narrow mildly to -$46.3 billion from April’s -$47.6 billion. However, today’s expected deficit of -$46.3 billion would still be moderately wider than the 12-month trend average of -$43.9 billion.
The bad news for the U.S. trade deficit is that exports have fallen by -0.4% over the past two months while imports have risen by +0.9%. In June, exports were up by +5.0% y/y, which was a step in the right direction, but that was outweighed by a +8.3% y/y rise in imports. The U.S. trade deficit should see some narrowing pressure as 2017 wears on due to this year’s fairly sharp -5.8% sell-off in the dollar index, which makes exports less expensive and imports more expensive. U.S. exports should also be helped by improved overseas economic growth.
The U.S. trade deficit report has taken on significant political importance since the Trump administration is looking for opportunities to boost exports and cut imports. In April, the U.S. had trade deficits of -$27.6 billion with China, -$5.5 billion with Germany, and -$5.2 billion with Japan. With its NAFTA partners, the U.S. in April had trade deficits of -$6.3 billion with Mexico and -$1.6 billion with Canada.
The wide U.S. trade deficit continues to be a bearish underlying factor for the dollar since about $1.2 billion worth of dollars flow overseas every calendar day. However, those excess dollars are a drop in the bucket for the FX markets, which trade an average of $5 trillion worth of currencies every day with 88% of that trade involving U.S. dollars, according to the BIS.
Weekly EIA report — The market consensus for today’s weekly EIA report (postponed from Wednesday due to Tuesday’s holiday) is for a -2.5 million bbl decline in crude oil inventories, a -2.0 million bbl decline in gasoline inventories, an unchanged level of distillate inventories, and a +0.7 point increase in the refinery utilization rate.
The markets are carefully watching the U.S. crude oil production report and the Baker-Hughes oil rig count after last week’s news suggested that U.S. oil production might be starting to falter in response to sub-$50 oil prices. U.S. oil production in last week’s EIA report fell by -100,000 bpd (-1.1%). In addition, Baker Hughes last Friday reported that active U.S. oil rigs fell by -2 rigs to 756 from the previous week’s 2-1/4 year high of 758 rigs, which was the first decline in rigs in 5 months.