The Week Ahead: Labor Figures Expected

Yung-Yu Ma

Following generally subdued trading around the holidays, financial markets kick off 2020 in earnest next Monday. The week begins with a view into the U.S. service sector then shifts to a series of monthly labor market readings, which dominate the week's economic data releases.

On Tuesday, the December reading of the Institute for Supply Management's Non-Manufacturing Index will be released providing a view into the state of the U.S. service sector.

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Even with the weakness in U.S. manufacturing across 2019, the service sector has continued to expand at a healthy clip -- a trend reflected in ISM's Non-Manufacturing Index. The reading is expected to come in at 54.6, well into expansion territory (readings above 50 indicate expansion) and a solid uptick from November's 53.9 result.

Elsewhere, the labor market has been a pillar of U.S. economic strength for several years running and forecasts for December labor market data suggest that trend is expected to continue.

On Wednesday, Automatic Data Processing (ticker: ADP) publishes its December private-sector payroll report, the first of several labor market-related releases for the week. After surprising to the downside in November (just 67,000 new jobs created), ADP's report is expected to bounce sharply higher in December returning the indicator to trend growth levels with 168,000 new private-sector jobs on the month.

On Friday, the federal government publishes its own monthly snapshot of the labor market including the Bureau of Labor Statistics payroll report, updated unemployment figures, and the latest reading on wage growth.

In November, the nonfarm payroll report shot higher (266,000 new jobs created) as General Motors Co. ( GM) employees returned to work following a strike the month before.

The December figure is expected to moderate but still reflect a healthy level of 175,000 new jobs. Economists expect the unemployment rate to hold steady at its multi-decade low of 3.5%.

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And average hourly earnings, a common measure of U.S. wages, is forecast to grow at 3.1% in year-over-year terms on par with the growth rates it has displayed across 2019.

Yung-Yu Ma is chief investment strategist at BMO Wealth Management U.S. and has been a contributor to The Smarter Investor since 2019. Yung is responsible for analyzing macroeconomic and market trends, and also performing valuation modeling across asset classes to guide strategic and tactical asset allocations for client portfolios. Prior to joining BMO, Yung was a finance professor at Lehigh University, where he taught courses in fixed income, equities and derivatives. Yung received a doctorate degree in finance at the University of Utah and a bachelor's degree in economics and political science, magna cum laude, at Williams College.