Ahead of today's payrolls report, where the whisper number is for a weaker print than the 180K consensus, this is what most sellside desks expect the BLS will report at 830am today:
- Natwest 235K
- Jefferies 215K
- SocGen 215K
- BoFAML 210K
- Scotia 210K
- Barx 200K
- RBC 200K
- DB 195K
- TD 190K
- Citi 185K
- HSBC 185K
- UBS 181K
- Daiwa 180K
- BNP 175K
- C Suisse 175K
- JPM 175K
- Mizuho 175K
- BMO 170K
- Nomura 170K
- WF 160K
- Goldman 150K
- MS 141K
- Dealer Median: 180K
Meanwhile, as we noted last night, the risk in today's jobs report is decidedly to the downside, with consensus expecting a sharp drop in payrolls to 180k (12-month average: 234k) from 304K in January, with the February jobs drop due to more seasonal temperatures weighing on weather-sensitive industries.
Specifically, Goldman is bracing for a big miss on the headline jobs print, estimating that nonfarm payrolls increased 150k in February, 30k below consensus and the slowest pace in five months. Goldman believes the trend in job growth has likely slowed from the 232k average pace of the last six months, and expects a drag of at least 40k from above-average snowfall during the February survey week. The February seasonal factors have also evolved unfavorably in recent years—perhaps reflecting the unusually mild weather of recent Februaries. If so, this would also restrain payroll growth in tomorrow’s report
Ironically, survey quirks may contribute to firmer wage growth, which could tick up to a pace last seen in 2009.
For those who missed our full preview yesterday, here again is what to expect from the BLS in 10 minutes courtesy of RanSquawk:
- Non-farm Payrolls: Exp. 180k, Prev. 304k.
- Unemployment Rate: Exp. 3.9%, Prev. 4.0% (NOTE: the FOMC currently projects unemployment will stand at 3.5% at the end of
- 2019, and 4.4% in the longer-run).
- U6 Unemployment Rate: Prev. 8.1%.
- Average Earnings Y/Y: Exp. 3.3%, Prev. 3.2%.
- Average Earnings M/M: Exp. 0.3%, Prev. 0.1%.
- Average Work Week Hours: Exp. 34.5hrs, Prev. 34.5hrs.
- Private Payrolls: Exp. 175k, Prev. 296k.
- Labour Force Participation: Prev. 63.2%.
JOB GROWTH: While consensus expects a sharp drop from last month's 304K payrolls print, predicting a number around 180K, Goldman is bracing for a big miss on the headline jobs print, estimating that nonfarm payrolls increased 150k in February, 30k below consensus and the slowest pace in five months. Goldman believes the trend in job growth has likely slowed from the 232k average pace of the last six months, and expects a drag of at least 40k from above-average snowfall during the February survey week. The February seasonal factors have also evolved unfavorably in recent years—perhaps reflecting the unusually mild weather of recent Februaries. If so, this would also restrain payroll growth in tomorrow’s report.
WAGE GROWTH: While the Street expects a healthy 0.3% MM rise in average hourly earnings (3.3% for the YY), Nomura is slightly more optimistic, and forecasts the annualised rate will rise to 3.4%, the firmest pace since April 2009. “We expect average hourly earnings to increase 0.34% MM in February, partly due to a positive bias related to where the BLS survey week falls relative to the first of the month,” Nomura writes, “in addition, we see some upside risk to February AHE arising from unusual declines for certain industries during January including manufacturing and construction that could revert.”
Meanwhile, Goldman estimates average hourly earnings increased 0.4% month-over-month, with the year-over-year rate rising two tenths to a new cycle high of 3.4% (consensus is +0.3% mom and +3.3% yoy). The forecast reflects quite favorable calendar effects (the February survey week ended on the 16th of the month). Supervisory earnings have also been somewhat soft in recent months and could rebound, as headline average hourly earnings (+0.77% over the last three months) have underperformed the production and non-supervisory subset (+0.96%).
JOBLESS CLAIMS: For the week of the February NFP survey period, US initial jobless claims for the week were reported at 236k vs 200.5k for the January survey period. Some desks had noted that the trend-pace of jobless claims has weakened (jobless claims ticking higher), which is likely to be a function of slowing economic growth. This may continue in the coming months, though positive developments on China/US trade and Brexit may see some flattening in the summer. Additionally, claims have been rising from very low levels.
ADP PAYROLLS: The ADP reported 179k payrolls were added to the US economy in November, short of the 195k the Street was looking for. Crucially, Moody’s chief economist stated that while the report was strong, job growth has likely peaked: “This month’s report is free of significant weather effects and suggests slowing underlying job creation. With very tight labour markets, and record unfilled positions, businesses will have an increasingly tough time adding to payrolls.” Others noted that the data followed months of above-trend prints, so may not signal any meaningful shift in job growth. Additionally, Pantheon Macroeconomics says it looks for an official NFP reading above the ADP print since the BLS data will include people returning to work following hurricanes. “ADP isn’t directly affected by hurricanes because it counts names on payroll lists, while the BLS only counts people who were paid during the survey period, so hourly-paid part-timers can drop off the numbers after storms, and then return the following month,” Pantheon said.
BUSINESS SURVEYS: The employment sub-index in the manufacturing ISM report for February ticked down by 3.2 points, taking it to 52.3, signalling employment growth for a 29th straight month. “Employment continued to expand, but at the lowest level since November 2016, when the index registered 51.6 percent,” ISM said, noting that an Employment Index above 50.8 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment. The nonmanufacturing ISM employment sub-component fell by 2.6 points, taking it to a still healthy 55.2, representing the 60th consecutive monthly print above 50. The survey compiler noted comments from respondents, which included “lower employment makes higherpaying positions elsewhere more attractive” and “It is more difficult to find well-qualified workers. Our backlog of unfilled jobs is stubbornly the same despite the efforts of the HR department.”
JOB CUTS: Challenger reported US employers announced 76.8k job cuts in February – the highest monthly total in over threeand-a-half years; that’s a 45% jump vs January, and 117% jump vs February 2018. Challenger noted that the sharp rise was primarily due to the US Army cutting over 50k jobs, as well as the fall in oil prices which caused thousands of job cuts within the energy sector.
"Job cuts have been trending upward since the last half of 2018,” Challenger wrote, “we continue to see companies respond to shifting consumer behaviour, new technology, as well as trade and market uncertainty through workforce restructuring,” and added that retailers, meanwhile, “are closing or revamping brick-and-mortar locations, leading to job loss or going bankrupt and cutting their entire workforces.” The organisation also drew attention to the auto sector, where job cuts are up by over 200% YY. “The Auto industry is one in which shifting consumer demand and new tech is creating the need to pivot in a different direction. Tech companies like Apple and Tesla are competing for the self-driving market, causing disruptions to traditional manufacturers and suppliers like Apple and Tesla are competing for the self-driving market, causing disruptions to traditional manufacturers and suppliers.”
Here are they key qualitative considerations headed into tomorrow's jobs print, via Goldman:
Arguing for a weaker report:
- Winter weather. Mild winter weather likely boosted job growth in December and January by 100k or more cumulatively, and the unwind of these effects is likely to weigh on job growth in February and early spring. Furthermore, survey-week snowfall swung above average in February, with a 1-inch seasonally adjusted rise vs. January (population-weighted basis, see left panel of Exhibit 1). The February seasonal factors have also evolved unfavorably in recent years (see right panel) - note the possibility that the seasonal adjustment software is fitting to the unusually mild weather of recent Februaries. If so, the seasonal factors could amplify the impact of snowy weather in tomorrow’s report. Goldman's February payroll growth estimate embeds a -40k weather effect, but there is risk of a considerably larger drag.
- Jobless claims. Initial jobless claims rose over the five weeks between the payroll reference periods (+8k to 229k on average, a 10-month high). This increase is consistent with some slowing in the underlying pace of job growth. Continuing claims also rose from survey week to survey week (+89k to 1,805k), but we continue to believe that residual seasonality is currently boosting that measure (by 100-150k).
- Job cuts. Announced layoffs reported by Challenger, Gray & Christmas increased by 23k in February to 66k (SA by GS). On a year-over-year basis, announced job cuts rose 41k, mostly reflecting increases in the industrial goods (+28k yoy) and retail (+13k yoy) sectors, the latter of which may include the impact of retailer bankruptcies (Payless Shoes, Charlotte Russe).
Arguing for a stronger report:
- Job availability. Three measures of labor demand all rose to new cycle highs in their most recent readings. The Conference Board labor market differential—the difference between the percent of respondents saying jobs are plentiful and those saying jobs are hard to get—rose 0.2pt to +34.3 in February. JOLTS job openings also rose (+169k to 7,335k in December). Third, the Conference Board’s Help Wanted Online (HWOL) index—whose methodology has been improved to remove duplicate ads and other sources of volatility—rose to 0.3pt to 104.0 in February.
- Labor supply constraints. Historically, labor supply constraints are less likely to bind in February, as first-reported job growth is often relatively strong when the unemployment rate is below estimates of NAIRU (for example, in 1997-99, 2006, and 2017-18). This may reflect the seasonally elevated pool of unemployed workers available to be hired (following end-of-year layoffs). Relatedly, firms may pull forward some spring hiring into February if they expect difficulty finding workers.
- Business surveys. Service-sector business surveys generally improved in February, as our headline non-manufacturing tracker rose by 4.0pt. While the employment component also increased (+1.3pt to 54.0), it has still declined notably in recent months and remains well below the elevated levels seen in mid-2018. Manufacturing-sector surveys were mixed in February, and our manufacturing employment tracker remained relatively stable (+0.2pt to 55.8). Taken together, business surveys suggest a slowdown in the pace of job growth but hardly a collapse (see Exhibit 2). Service-sector job growth rose 224k in January and averaged 173k over the last six months. Manufacturing payroll employment rose 13k in January and increased 19k on average over the last six months.
- ADP. The payroll-processing firm ADP reported a 183k increase in February private payroll employment—7k below consensus and moderately below the average pace over the prior six months (+214k). While slightly below expectations, the February ADP report suggests that the underlying pace of job growth remains above potential. We also note that winter weather tends to affect the official payroll measure more so than it affects the ADP series.
- End of Government Shutdown. While the partial government shutdown (Dec. 22 through Jan. 25) did not significantly affect January’s federal employment figures (+1k mom sa), contractor layoffs may have weighed on the information (-4k) and business services (+30k vs. six month average of +43k) categories in that report. In terms of February job growth, while a rebound in contractor activity could conceivably boost employment in some services categories, federal office closures in the first two weeks of the payroll month may have depressed federal hiring.
Source: RanSquawk, Goldman