Thoughts on Upcoming June NFP and more ...

We finally completed our model and came up with a projection for the June NFP which is scheduled to be announced by BLS on Friday morning.  We estimate June NFP of approx. 74K, up around 5K from May, but lower than the 90K consensus.  The consensus range is certainly a wide one, between 35K and 167K.  Given the way the market is moving higher, we think it is expecting a much smaller number, which would push Bernanke and the Fed into action.  For this reason, if NFP comes in-line with the consensus or even our 74K, the market would likely be disappointed.

Our estimate is based on the assumption of ADP coming in at 95K, which is what the Street is expecting.  ADP will be reported on Thursday.  Our model does take initial claims and employment statistics provided by five of the Federal Reserve district banks (within their monthly business surveys) and within the ISM (depending on if it is released before the BLS report), into account.  We note that although the services ISM index is a significant economic indicator, changes in its employment series index have not necessarily moved in-step with changes in NFP.  For this reason, in addition to the fact that services ISM won't be out until the day before the BLS report, we did not take services ISM into account.  If anything in the services ISM report jumps out at us, we may make some changes. 

The equity market is up nicely as many, the ones actually at work today, are being patriotic and investing in the US stock market.  We'll admit, we are not sure if this is correct.  However, as mentioned several times, we do know that the 'insurance umbrella' provided by the Fed is allowing many to take on more risk.  The worse the economic figures, the more likely a QE3 will be initiated before the elections; although the market will react negatively for a few hours (or just minutes!) before it begins imagining that QE3.  And that is what many are betting on.  S&P 500 is nearing that 1374 resistance level we suggesed, so if suddenly new doubts are cast over a QE3, look out below!  Happy Fourth of July!