US week ahead: ISM and NFP after hurricanes - Danske Bank

Analysts from Danske Bank believe ISM manufacturing data released on Monday is likely to increase to an even higher level in line with regional PMIs while they expect the NFP on Friday to be strongly affected by September’s hurricanes.

Key Quotes: 

“In the US, the most important data release will be the labour market report for September, due to be released on Friday. Markets usually pay a lot of attention to the report and react negatively to weak data but this is not likely to be case this time. The numbers from this release are likely to be more affected by Hurricanes Harvey and Irma and will not reflect underlying labour market strength. Looking at initial jobless claims, they have risen significantly since the hurricanes but as we have said previously, we think any impact on US economic data will be short-lived. Also, the Fed clearly stated at its recent meeting that it will look through weak economic data in the short term as it is due to the hurricanes. We estimate job growth of just 90,000 although the uncertainty is high, especially in the first estimate (after Katrina, the first estimate showed non-farm payrolls decline on a national level but that was later revised up to an increase), an unchanged unemployment rate (may increase also due to the hurricane but more difficult to say due to the volatility in the underlying survey) and an increase in average hourly earnings of 0.2% m/m (2.5% y/y).”

“Note that we are due to get the release of the ADP employment figures for September on Wednesday, which will give us some indication of the effect of the hurricanes on employment growth, despite ADP having been a bad predictor of actual employment growth so far this year.”

“On Monday and Wednesday, we receive ISM manufacturing and ISM nonmanufacturing, respectively, for September. Given that both Empire, Philly and Richmond regional PMIs increased strongly in September there is also room for ISM manufacturing to increase to around 60 despite PMI manufacturing was stable at a much lower level in September, although the hurricane may also affect ISM in the short-run as well. This big gap between PMI manufacturing and ISM manufacturing is still puzzling us and we think the truth is likely somewhere in the middle but note markets tend to focus more on ISM. We expect ISM non-manufacturing to be more or less unchanged since the current level seems very well aligned with PMI services."

“The coming week also brings several speeches by FOMC members, including Fed Chair Janet Yellen, who is due to speak on Wednesday.”