Bank of America expects a jobs report dud on Friday

Bank of America forecasts a July nonfarm payroll increase of just 60,000, significantly below the 100,000 consensus, which its economist Aditya Bhave suggests would elicit a dovish market response. However, BofA advises investors to prioritize private payroll growth, expected to accelerate to 85,000, and the unemployment rate, which it projects at 4.2%. While a 4.2% U-rate implies a balanced labor market, Bhave notes that proximity to 4.3% could still signal increasing labor slack and a dovish market shift.

Analysis

Bank of America has issued a contrarian forecast for the upcoming July jobs report, anticipating a nonfarm payroll increase of only 60,000, which is substantially below the 100,000 Dow Jones consensus. The bank's economist, Aditya Bhave, attributes this expected weakness to a projected 25,000 decline in government payrolls, which he views as a correction of a seasonal distortion from June. Bhave advises investors to look beyond the headline figure, emphasizing that the underlying trend in private payrolls is more significant. Bank of America forecasts private payrolls will accelerate from 74,000 in June to 85,000 in July, suggesting a healthier private sector labor market. Furthermore, the unemployment rate is highlighted as a critical data point. The bank's forecast of a 4.2% rate, matching consensus, is seen as indicative of a 'well balanced' labor market. However, Bhave notes that the market's interpretation will be sensitive to the specifics, where a rate approaching 4.3% would signal increasing labor slack and trigger a dovish response, while 4.1% or lower would be considered hawkish.

Key Decisions for Investors

• Investors should prioritize the private payrolls figure and the unemployment rate over the headline nonfarm payroll number to gauge the true health of the labor market.
• Prepare for a potential dovish market reaction if the headline number misses expectations, but recognize this could be short-lived if the underlying private payrolls data proves robust as Bank of America predicts.
• Monitor the precise unemployment rate reading closely, as a figure that rounds to 4.2% but is numerically closer to 4.3% could be interpreted by markets as a signal of growing labor slack, influencing Fed policy expectations.