Solid U.S. data and GDP tracker update - Nomura

Analysts at Nomura offered a review of the key data that came overnight in the US session ahead of this week's Nonfarm Payrolls showdown.

Key Quotes:

ADP employment report: The report indicated that nonfarm private employment increased by 298k jobs from January to February, surprising markets to the upside (Nomura: 215k, Consensus: 190k). The strength in today’s report was broad-based. The goods-producing and service-providing sectors added 106k and 193k jobs, respectively. The manufacturing sector posted a healthy gain of 32k jobs, and the weather-sensitive construction sector added 66k, likely driven by the unusually warm weather. 

Productivity Q4, final: The final estimate of Q4 nonfarm labor productivity growth by the Bureau of Labor Statistics was unrevised at 1.3% q-o-q saar, which is slower than the downwardly revised 3.3% increase in Q3 (previously reported as 3.5%). Output was revised upwards to an increase of 2.4% from 2.2%, but employee hours were revised upwards as well to a 1.0% increase from 0.9%, offsetting the increase in output. Productivity growth in 2016 remained weak on average. Annual percentage growth in productivity was 0.2% in 2016 compared to 0.9% in 2015. There is no significant evidence that it will pick up strongly in the near term. 

Unit labor costs Q4, final: In the final report, Q4 unit labor costs was unrevised, increasing by 1.7% q-o-q, which is a modest rebound from a downwardly revised 0.1% q-o-q increase in Q3 (previously reported as 0.2%). Growth in hourly compensation was slower than in Q3, but it was a slowdown in output growth in Q4 that accelerated unit labor cost growth. On a year-over-year basis, unit labor costs were up 2.0% in Q4, which falls within a steady rate in the low- to high-2% range. Acceleration in this measure would be a positive sign of wage growth. A pickup in wages could spur higher inflation as firms adjust prices higher to account for labor costs in its production cost. However, consistent with other measures of wage inflation, which did not show any evidence of notable acceleration despite tightening labor markets, today’s reading suggests no significant acceleration in wage inflation. 

Wholesale inventories: Wholesale inventories were revised downward from the advance estimate by the Commerce Department, decreasing by 0.2% m-o-m (previously reported as a 0.1% decline). This is a slight slowdown from steady increases in December and November. Durable goods inventories were down 0.2% m-o-m, driven by a sharp decline in automotive inventories. Nondurable goods inventories also fell by 0.1%. 

GDP tracking update: Today’s wholesale inventories report included a slight upward revision to December wholesale inventories, suggesting that wholesalers’ inventory investment was stronger than the second estimate by the BEA. As a result, our Q4 GDP tracking estimate has been revised upwards by 0.1pp from 2.0% to 2.1%. Higher inventory investment in Q4 implies a smaller increase in private inventories in Q1. Furthermore, January wholesale inventories data, which were revised down from the advance estimate by the Commerce Department, were negative for growth. Therefore, we are lowering our Q1 GDP tracking estimate by 0.1pp from 1.4% to 1.3%."