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Two Views On What To Expect From Tomorrow's NFP Number: Goldman Sachs And David Rosenberg Chime In

Tyler Durden's picture




 

In advance of tomorrow's Bureau of Labor Statistics fireworks, Goldman's Andrew Tilton explains why GS has a prediction of +125,000 for tomorrow's NFP number (and sees the unemployment rate declining to 9.0%), and provides a short perspective on why the market is still bearish on the employment picture. Probably a more fitting question is why the market is not far more bearish on jobs: 13 weeks of 400K+ claims, offset merely by one 0.1 increase in the service ISM employment component (from 54.0 to 54.1). Ah yes, the ADP number. The same ADP number which "surged" in January leading Barclays to come up with the insane NFP prediction of +580,000 (and a 95% confidence in a 450,000 print) only for the final number to be a gross disappointment. But who cares about headfakes: the market is back in its mania phase when good news are doubly accentuated, and bad news are immediately ignored. So anyway, here is Goldman and David Rosenberg. As to what happens tomorrow, only the Obama administration, Congress, Larry Meyer, and virtually every single NFP bank, know what is coming tomorrow.

From Goldman:

Expectations for tomorrow's June labor market report are modest. Bloomberg reports a consensus forecast of +110,000 for nonfarm payrolls and 9.0% for the unemployment rate. Payroll forecasts were even more conservative last week; when we first issued our forecast, consensus was only +90,000. Better-than-expected results from the Institute for Supply Management (ISM) manufacturing index (including its employment component) and today's ADP employment report (which came in at +157,000 for private sector employment, more than double consensus expectations) have calmed fears of another very weak reading.

Still, market participants seem to be taking a skeptical view of the employment outlook. One reason is the generally weak economic data released in May and June. Real GDP growth looks set to average 2% or a bit less in the first half of the year, a below-trend pace. On a sustained basis, this rate of economic growth would imply a slight upward drift in the unemployment rate, with payroll gains of perhaps 100,000 per month at best.

A second reason for caution is the May employment report itself, which was a major disappointment, featuring only 54,000 payroll jobs and a surprise increase in the unemployment rate to a year-to-date high of 9.1%. (State-level data showed widespread weakness, with more states losing jobs than adding jobs in May.) Although we had expected a weak payroll report, this fell short of even our low expectations. In retrospect, however, we think the May report was probably afflicted by several temporary factors:

  1. Disruptions to the motor vehicle sector. After averaging monthly gains of more than 30,000 jobs through the first four months of the year, manufacturing employment was down 5,000 in May. About half of this deceleration was due to employment in motor vehicle production (which represents only 12% of manufacturing employment) following disruptions stemming from the earthquake in Japan. Employment in ancillary industries may account for some of the remainder. With vehicle production rapidly increasing in recent weeks, the ISM manufacturing employment index up to nearly 60 in June, and the June ADP employment report showing a gain of 24,000 in manufacturing employment, manufacturing payrolls clearly are set for a bounce this month.
  2. Timing of April employment survey. Spring is normally a significant hiring period; although seasonal adjustments attempt to correct for this, they do not always do so perfectly. The April employment survey occurred relatively late (the survey is conducted on the 12th of the month, and April 12th was a Tuesday), and was five weeks after the March survey l (four weeks is more common for the April survey interval). In effect, this may have shifted some jobs--perhaps as much as 50,000-75,000 in total--that would have been included in the March and/or May reports into April. No such distortion is at work in June, so insofar as May payrolls were suppressed by this technicality, June should look better.
  3. Inclement weather in some states. Bad weather may have held down employment growth in a few areas over the past couple of months, at least on the margin. National average precipitation was substantially higher than usual in April and somewhat higher than usual in February; moreover, the rainfall was particularly concentrated in certain regions (e.g. flooding in the Midwest). Our models take into account only the national average data, so this could be a source of modest upside risk to our estimates.

Most labor market indicators have been stable or better in recent weeks. New jobless claims ranged between 418,000-432,000 for seven weeks, job advertising has held at reasonably robust levels, the employment indexes in both of the ISM surveys improved (albeit only marginally for the non-manufacturing index), and the ADP report on private-sector employment growth was much firmer. Given this information, and the special factors that weighed on May's report, we expect an above-consensus gain of 125,000 payroll jobs in June. This implies a private sector payroll gain of around 150,000 jobs, given the recent pace of job cuts in the government sector.

The unemployment rate is a fairly close call, but we expect it to drop to 9.0%. The bar for improvement is quite low, since the unrounded unemployment rate was 9.053% in May. The unemployment rate is determined from the household survey, which may show a very different rate of job growth than the payroll survey--perhaps even with the opposite sign--in a given month. But given our forecast for the payroll report, it makes sense to assume at least some gain in the household survey as well, and probably enough to exceed growth in the labor force (which has been flat on average thus far in 2011). Reflecting the substantial slack in the labor market, we expect earnings to be soft, with average hourly earnings up just 0.1% in June (the average over the past year is +0.15%).

And from David Rosenberg:

As for June nonfarm payrolls tomorrow, one can now see the prospect for 150- 175k print given the relationship between ADP and private payrolls in the Bureau of Labor Statistics release (ADP has undercounted for four straight months) and an expected further contraction in government employment. The consensus had been 100k for tomorrow but even if the whispered estimates moved higher (recall that they also did for the ISM after the Chicago-land number was released last Thursday and the ensuing better-than-expected national print the very next day) the Dow still managed to unleash a triple-digit rally.

So it doesn't really pay to assume that a stronger-than-expected nonfarm payroll number tomorrow will only elicit a "sell the fact, take profits" trade (it may only serve to embolden the growth bulls). Keep in mind that this strategy did not work with the ISM a week ago.

The overall trend in employment is slowing down but if the June ADP report is providing anything remotely close to an accurate story here, it is that the headwinds in May were more severe (weather, auto/tech-related supply squeeze) than we had been thinking and perhaps more transitory as well. There are other headwinds at play that have not gone away — fiscal drag, less Fed support, weaker growth overseas — but not yet enough to cause the very modest growth we are seeing now to morph into outright contraction. That is likely next year's story.

 

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Thu, 07/07/2011 - 18:42 | 1434381 mynhair
mynhair's picture

The NFP will not matter.  It's all about debt limit expectations now.

8% up in a week tells me both yea and nay debt limiters are bidding the Pig.

Only half will be right.

Thu, 07/07/2011 - 18:51 | 1434403 MountainHawk
MountainHawk's picture

Name looks familiar, did u frequent the market watch message boards?

Thu, 07/07/2011 - 19:05 | 1434436 mynhair
mynhair's picture

Just for 20 bounces.

Thu, 07/07/2011 - 19:28 | 1434483 Careless Whisper
Careless Whisper's picture

if the number is bad, then we gap down at the open and go higher. if the number is good, we gap up at the open and go higher. this isn't complicated.

 

Thu, 07/07/2011 - 19:51 | 1434517 mynhair
mynhair's picture

Except the gaps occur pre-market.  Watch Fx an hour before, see if the $ disconnect to futures holds like this morning.

Thu, 07/07/2011 - 23:14 | 1434934 TruthInSunshine
TruthInSunshine's picture

Whisper rumor has +398,000 McDonald's hamburger manufacturing jobs blowout on deck tomorrow.

These are good times.

Thu, 07/07/2011 - 20:09 | 1434559 JohnG
JohnG's picture

Yes.  I've asked him/her to return previously.

His comments usually prove my point.

Thu, 07/07/2011 - 18:45 | 1434389 Rainman
Rainman's picture

I'm impressed the Squid brought up the sucky weather as an excuse early on.

Thu, 07/07/2011 - 19:28 | 1434485 Atomizer
Atomizer's picture

Arizona sandstorms should play the spin well.

Thu, 07/07/2011 - 18:45 | 1434390 trampstamp
trampstamp's picture

Last months numbers were a technicality? Right... more like rigged so that the numbers looked low and a bigger self-off as to shake out all longs and scoop up stocks at a lower price. You can't make this shit up!

Thu, 07/07/2011 - 18:55 | 1434406 RollinRavenPurple
RollinRavenPurple's picture

From the above - I have no idea what to think.  I sat out most of this rally off the S&P 200DMA.  I honestly thought it was going to break.  Last month's jobs number was a horror show and I honestly don't see this month being much better. 105K max.

Won't summer teacher layoffs significantly effect the number on the downside?

STBOT (sell the blow off top). 

With NFLX, CRM, FFIV, UA, CMG, SODA, LNKD, P and LULU at absurd valuation and people on full margin - I can't wait for the elevator down. 

Rosie: 0 for XXX.  About as good as Byron Wein. 

Waterfall the Jobs reports, bitchez!  100 point down day - too much euphoria

 

Thu, 07/07/2011 - 20:16 | 1434574 Manzilla
Manzilla's picture

I thought it was going to break but I came back with the 6/23 action on the qqq. I almost bailed the next day but decided to give it another day.

 

Why not play some of those first then watch em fall? If the market goes higher those ain't falling. If not well keep reasonable stops. People have been calling for the fall of all of these for years.(The IPOs excluded) Whether valuations are absurd for these doesn't matter at the moment. Price is truth. Ponzi scheme or whatever this ridiculous system has become doesn't matter neither. Play it either way. Sitting back and waiting for it to happen usually misses all the opportunity in between.

 

Just my personal thoughts on the matter.

Thu, 07/07/2011 - 19:34 | 1434418 CrashisOptimistic
CrashisOptimistic's picture

Make no mistake about all this.  The faux California budget was all about this number.

This will prove true for ALL state budgets.  NO JOB CUTS ALLOWED UNTIL NOV 2012.  

Now let's see if oil lets them get away with it, because oil is the only thing they cannot print.  It is oil, and only oil, that can take it all down.

Thu, 07/07/2011 - 19:40 | 1434501 richard in norway
richard in norway's picture

sure they can print oil, what do think is being traded, paper oil!!

Thu, 07/07/2011 - 19:56 | 1434527 CrashisOptimistic
CrashisOptimistic's picture

No, Mr. North Sea.  Refineries pay little or no attention to that stuff.  They bid from the sellers, and the sellers offer it at the highest bid.  Notice how the SPR oil price was so much higher than WTI.

WTI is meaningless, and that means the traded price is meaningless.  The price is what the consumer will pay, bidding against the Chinese.  The market follows that; not vice versa.  It's the only "market" that actually means anything nowadays for civilization.

Thu, 07/07/2011 - 20:02 | 1434543 richard in norway
richard in norway's picture

ok i admit you can't refine the paper oil and fill your tank with it

 

but i'm sure that some of our dear leader think you can

Thu, 07/07/2011 - 18:58 | 1434420 disabledvet
disabledvet's picture

i still think the best idea i've heard is LOWERING the age of eligibility of Social Security.  Make it 55, clear out the detritus and get the working folks excited about working again.

Thu, 07/07/2011 - 19:06 | 1434438 mynhair
mynhair's picture

Nah, make it 85.  Scru those that paid into it!

Fri, 07/08/2011 - 02:14 | 1435198 FlyPaper
FlyPaper's picture

Thanks for the support . . . 

Fri, 07/08/2011 - 04:48 | 1435321 LudwigVon
LudwigVon's picture

Those that paid in benefited appreciably in the significant improvements in living conditions since inception of this retarded socialist program. Old timers should be proud to see it shut the fuck down. They should not be selfish as they are the richest in society and have truly had the opportunity to enjoy the fruits of the debt ponzi. Now it is time to pay for what you have enjoyed. End SS. No more contributons, no more benefits, today. Do not try to perpetuate what you know is wrong, enslaving your children and your contrymen for selfish reasons. Socialism = Slavery. Implicit taxation without representation via the sold & comprimised currency enforced (with guns and for-profit  prisons) monopoly. 

Thu, 07/07/2011 - 19:11 | 1434447 carbon based unit
carbon based unit's picture

methinks its all about the seasonal adjustments.  at this time of year they should be reducing the reported numbers; if they say they're seasonally adjusted but don't apply the full seasonal treatment then you get a blowout.  as to ADP, if they've been lagging the last three or four months, perhaps this was their catch-up?

Thu, 07/07/2011 - 19:12 | 1434450 Piranhanoia
Piranhanoia's picture

Easy to make predictions when you are handed the printout. Do you think they pay the government to announce this early?  Maybe the government puts up leaks for bid?  

You need faith to invest with us.  God Financial has you covered before the crash, after the crash, and after you dive from the 15th.

Thu, 07/07/2011 - 19:42 | 1434505 Space Potato
Space Potato's picture

Nice! Since they are all in bed together I guess it is as easy as "Pass the popcorn please." I'd like to get in on this GF thing. Sounds like a sure thing.  Brilliant!

Thu, 07/07/2011 - 19:12 | 1434452 swissinv
swissinv's picture

maybe another 50k to create a hudge expectation mismatch, fear baby!

Thu, 07/07/2011 - 19:17 | 1434461 Atomizer
Atomizer's picture

Unless they ass rape the taxpayer, the system goes Poof.

Thu, 07/07/2011 - 19:37 | 1434497 Nimnum
Nimnum's picture

I should have known when the Fed was done with QE2, commodities and bonds would be viewed as unnatractive and thus give every reason in the world to be in stocks. Where else did you expect them to put the money?

Fri, 07/08/2011 - 07:13 | 1435416 nathan1234
nathan1234's picture

Stocks are temporary. The Fed needs it shortly for Treasuries.

Thu, 07/07/2011 - 19:39 | 1434499 ebworthen
ebworthen's picture

 

The more they pump the markets up the more capital gains retirees have to pay on what they cash out to survive in the current environment.

Meanwhile, back in vampire squid town (NYC), the banks and houses continue to get free money from the FED, increase fees on consumers for holding their money, swim in bonuses, and tell Washington what to do.

No, good people, you may not leave the plantation and you will pick more cotton.

 

Thu, 07/07/2011 - 20:19 | 1434586 TheGameIsRigged
TheGameIsRigged's picture

This gov't is ridiculous !!  I cannot stand all of the manipulation - it makes me sick to my stomach.  I only wish the general public had a clue as to how badly they are being bent over.  Revolution!!

Thu, 07/07/2011 - 19:50 | 1434519 richard in norway
richard in norway's picture

what time does this number come out, it it 9am Chicago time or new york

Thu, 07/07/2011 - 20:37 | 1434618 cosmictrainwreck
cosmictrainwreck's picture

8:30 am, New York = EDT

Thu, 07/07/2011 - 21:16 | 1434699 richard in norway
richard in norway's picture

thanks

Thu, 07/07/2011 - 20:05 | 1434552 Robslob
Robslob's picture

The pre-release number came out a week ago last Monday...the rest of us will get to see it tomorrow morning...

Thu, 07/07/2011 - 20:34 | 1434612 espirit
espirit's picture

Buy the rumor, sell the news.  Unfortunately for most, the latter happens pre-market.

The trend is your friend, until it isn't.

Thu, 07/07/2011 - 20:48 | 1434642 SDRII
SDRII's picture

ADP/nonfarms correlation ~0.0 since 2000. Since 2009 -.43.

Thu, 07/07/2011 - 20:51 | 1434653 QQQBall
QQQBall's picture

My ex-wife's second husband got a lot of interviews in the past 3 months and he landed a job making more than his previous gig.  He was sidelined for 6+ months.  I suspect the number will be strong - most of us that have kept our seats have been doing twice as much for 1/2 the compensation - that has to end sometime soon.  I have a buddy who works at a large bank and they have been hiring alot of people - and not tellers either.

Thu, 07/07/2011 - 21:43 | 1434757 Atomizer
Atomizer's picture

Sounds like you should hook up with your ex-wife's second husband to land a new gig. Why continue keeping your seat at 1/2 pay?

Thu, 07/07/2011 - 21:45 | 1434762 SDRII
SDRII's picture

How does that correlate with last week's round of S/T layoffs across the banks (& retail banks?).

Thu, 07/07/2011 - 22:13 | 1434805 static
static's picture

 

"But who cares about headfakes: the market is back in its mania phase when good news are doubly accentuated, and bad news are immediately ignored"

reminds me of an old post i read on Satyajit Das's Blog....

According to George Will: "The future has a way of arriving unannounced". That was before equity analysts.

In dense, jargon-infected prose splattered with spurious statistics, many analysts are trumpeting that the worst of the credit problems are behind us. Major equity markets have recovered a substantial portion of their losses; even bubonic plague stricken financial stocks have rallied. It is time to buy for the new equity "bull market".

The following guide to the calls of equity markets seers may be helpful:

Weak data - Fed eases, stocks rally.

Strong data - Strong economy, stocks rally.

Consensus data - Lower volatility, stocks rally.

Bank loses $8bn - Bad news all out of the way,stocks rally.

Oil price up -Good for energy producers, stocks rally.

Oil price down - Good for consumers, stocks rally.

$US down - Good for exporters, stocks rally.

$US up - Lower inflation, stocks rally.

Inflation up - Good for commodities, stocks rally.

Inflation down -Fed eases, stocks rally.

Climate change -Soft commodities up, stocks rally.

World ends - Good for disaster recovery companies, stocks rally.

 

Fri, 07/08/2011 - 03:29 | 1435277 10kby2k
10kby2k's picture

POMO ends----economy doesn't need help anymore----stocks rally

Fri, 07/08/2011 - 07:08 | 1435409 nathan1234
nathan1234's picture

+1

Thu, 07/07/2011 - 22:42 | 1434867 RobotTrader
RobotTrader's picture

static-

You forgot a couple of things:

Massive mutual fund outflows - Can't get any worse, stocks rally

Mad panic into Treasuries - "Animal Spirits" invigorated, stocks rally

Worst streak of unemployment since the 1930's - LULU, CMG, FOSL, ULTA, SBUX, COH, etc. new world record highs

Horrific debt levels persist - COF, AXP, MA, V blow out to new highs

 

Fri, 07/08/2011 - 02:00 | 1435182 static
static's picture

yeah huh. 

and there is always the, now old hat:

freaking Goverment intervenes:

Mark the Market anywhere you want:

STOCKS RALLY.

Thu, 07/07/2011 - 23:10 | 1434924 rosiescenario
rosiescenario's picture

These employment numbers are camouflage for what is really happening...the average Joe is making less money. We are creating low wage jobs and losing higher paying ones...we are all taking in each others' laundry, while China is selling us the washing machines.

Thu, 07/07/2011 - 23:52 | 1435010 MrSteve
MrSteve's picture

Only on ZH can we find updated algos on "no tickee, no washee". You forgot to update the 50K burger flipper trainees from MCD. Truly, the land of opportunity is on a roll!

Fri, 07/08/2011 - 02:03 | 1435187 static
static's picture

Zero Hedge: I dub thee:

"True Grit"

Do NOT follow this link or you will be banned from the site!