The much anticipated January US employment report could push US Treasury yields still higher if it shows more strength than expected, or knock yields back to the low end of their recent range if job growth was weaker than forecast. Economists polled by Reuters estimated 145,000 jobs were added to US non-farm payrolls in January, after just 103,000 new jobs were added in December.
The benchmark US 10-year yield has been trading in a well-carved range between 3.25 to 3.50 percent and finished above the high end of that bracket - at 3.55 percent - on Thursday, perhaps anticipating a more robust January job count than economists' consensus forecast of 145,000 new jobs added to non-farm payrolls. One variable in how the payrolls report turns out is whether winter storms interfered with people's ability to get to work and impacted the job count during the week in which the Labor Department takes its survey.
If bad weather suppressed the job count, one obvious question will be by how much, economists said. Friday's January payrolls report arrives after a big rise in interest rates that evolved from improved economic data. Encouraged by the high employment readings in the Institute for Supply Management indexes, the Treasury market is braced for a strong employment report on Friday, said Robert Tipp, chief investment strategist for Prudential Fixed Income, the latter with $240 billion in assets under management.
Thus, the biggest short-term risk is that yields will move down on a weaker-than-expected report, he said. Goldman, Sachs economist Andrew Tilton said the January employment report would be "a duel between improving job market fundamentals and nasty winter weather." Fundamentals have been strong, with accelerating GDP growth, signs of a pickup in job openings, and declining layoffs in recent months, Tilton wrote in a research note.
But very cold, snowy weather - including a major snowstorm in the January payroll survey week - likely kept some people from getting to work, damping the payroll count, he said. Still, Goldman, Sachs estimates that 175,000 jobs were added to US non-farm payrolls in January. "The underlying trend is very likely stronger than this - or will be soon - but bad weather will mask some of that improvement," Tilton said.
Friday's report will also feature the annual "benchmark revisions" to the employment data. The Labor Department's preliminary estimate is for a 366,000 downward revision to the level of payrolls in March 2010, implying that job growth over the previous year was overestimated by about 30,000 per month. Typically, revisions for subsequent months are directionally similar, but smaller in magnitude, Tilton said.