ISM employment index and ADP point to strong Jan payrolls - ING

Rob Carnell, Chief International Economist at ING, notes, "How much more does the market need to start pricing in a March FOMC rate hike? Rising inflation as described by the ISM prices paid figure might help sway the waverers."

Key Quotes
"Last month, the ADP survey very accurately predicted the weak payrolls rise of only 156 thousand, and this month, the ADP has surged to 246 thousand, way above the consensus view of a 175 thousand increase (ING f 180K). But the error of this series is usually a lot bigger, with a standard deviation of nearer to 40,000. Our own forecast and the consensus is probably looking a little low now. But if we were to make a last minute forecast change (and this is usually a mistake), we would probably only push it up to about 200,000."

"But there is other corroborating evidence - the employment index of the manufacturing ISM survey also picked up sharply this month, and with oil and gas rig counts picking up, employment in the extraction industries is also likely to be gathering pace and could help to deliver a very respectable jobs growth figure this Friday." 

"In the end, wage growth will likely be a key focus of this Friday's labour report, and here, the news will look less good, but only due to base effects. Any dip in annual wages growth for the Jan report will almost certainly be reversed in the Feb report, due out before the next FOMC meeting." 

"With jobs growth strong, wages now rising, and inflation closing in on the Fed's longer-run objective (echoed again in the strong prices paid figure of the Manufacturing ISM survey), we are struggling to see why the market is not giving more credence to the possibility of a March rate hike. We certainly think it is a strong possibility." 

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