How Goldman Calculates Its 100,000 NFP Forecast For Tomorrow

Tyler Durden's picture

There was a time, long ago, when economic data mattered, and when Goldman's NFP forecast was considered one of the best on the street due to the proximity of The Pound and Pence to both 85 Broad and 33 Liberty. Then Goldman went to 200 West, central planning took over, and Bizarro world was the result, where a huge NFP beat would mean a collapse in the stock market once the prospect of QEternity actually ending returns. In other words, Goldman lost its touch. Yet their insight can still be valuable. Which is why below we present the argumentation that Goldman's Sven Jari Stehn uses to expect a BLS payroll number of 100,000 tomorrow, translating into an 8.1% unemployment rate.

Payroll Preview: Another Sluggish Report

  • The labor-market news received since the disappointing August employment report has been mixed. While the ADP measure of employment, the manufacturing ISM survey and households' perception of job availability surprised on the upside, initial jobless claims and job advertising have been volatile, and the employment sub-index in the non-manufacturing ISM weakened notably.
  • We therefore expect another sluggish jobs report in September, with a 100,000 gain in nonfarm payrolls and a flat 8.1% unemployment rate. The possibility that the uncertainty associated with the fiscal cliff has started to weigh on firms' hiring decisions poses a downside risk to our forecast.

The August employment report was a disappointment as payrolls grew by only 96,000 and the unemployment rate ticked down to 8.1% due to a drop in labor force participation. The labor-market news since then has been mixed:

  1. Jobless claims. Although initial jobless claims were higher in the September survey week (at 385,000) than in the August survey week (369,000), claims are now back to 367,000.
  2. ADP. The ADP measure of private employment increased by 162,000 in September, ahead of expectations for a 140,000 gain but down from (a revised) 189,000 gain in August.
  3. ISM surveys. While the employment component of the manufacturing ISM survey improved in September (from 51.6 to 54.7), the corresponding sub-index of the non-manufacturing ISM weakened (from 52.0 to 49.5). We have generally found the latter to be more closely correlated with overall payroll growth, not surprisingly given that it covers a much larger part of the economy.
  4. Perceptions of job availability. The differential between respondents who view jobs as "plentiful" versus "hard to get" in the Conference Board survey improved 1.8 points in September.
  5. Online help-wanted advertising. The Conference Board measure of help-wanted advertising declined in both July and August, but rose in September. The index was up in seasonally adjusted terms in August (September data are not yet available). We have generally found that online help-wanted ads have the most predictive power for payrolls at a 1-2 month lag, so we would view this as a split verdict.

Our payroll models interpret these conflicting signals as another sluggish employment gain in September. We therefore expect a 100,000 gain in nonfarm payrolls and a flat 8.1% unemployment rate. A sluggish employment report would also be consistent with the state of the economy more generally. Economic momentum since early August has softened, as our GDP tracking estimate for Q3 GDP and the August CAI have fallen from 2.3% to 2.0% and from 1.1% to 0.5%.

A downside risk to our forecast for the September jobs report is the possibility that the uncertainty associated with the fiscal cliff has started to weigh on firms' hiring decisions. In a simple test conducted in late August (i.e. before publication of the August employment report) we found no evidence that the fiscal cliff--or, to be more precise the looming automatic spending cuts (or so-called "sequester")--had already started to weigh on employment. We reached this conclusion by exploring whether industries with meaningful exposure to government spending had experienced weaker employment growth between May and July than industries with little exposure to government spending. We found no such relationship (with an r-squared of 0.003). Exhibit 1 shows an update of this analysis, showing the relationship between industry exposure to government spending against employment growth in August. Although the relationship is far from watertight--with an r-squared of only 0.026--a hint of a negative relationship has emerged. Such an effect would also be consistent with the very weak durable goods orders numbers in July and August. We therefore view any uncertainty effects from the fiscal cliff as a downside risk to our payroll forecast.

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88888's picture

unemployment will prob go to 8 or less than 8% if Obama is trying to get reelected

DeadFred's picture

I'm pretty sure he is trying. Although last night put that in question. Since his guys will provide the numbers we'll see whatever Obama wants them to be.

Many years ago I read a newspaper account about Mao swimming across the Yangtze River. A documentary was made of the event to dispell rumors of his failing health. The amount of time he was reported to have taken to make the journey calculated out to an Olympic contender's speed. That's the kind of number we're likely to see tomorrow. Unless they snuck some Mormons into the BLS somehow.

spankthebernank's picture

It'll be more like 120-130 and the market will be up triple digits....must.paint.bright.picture.before.election. 

Bringin It's picture

Sorry, that would crush the market in bizarro land.

The trend is your friend's picture

market will be up no matter what.  Weak print means money forever, good print means economy is getting stronger but we are always going to be a long ways from max employment so the money will still be free.  YAY 14500 dow 1500 s&p by election day

max2205's picture

ObamaPhone will make sure he lies it above 200k. Desperate times.....

fonzannoon's picture

If Obama took a dive for some reason last night then I would'nt be surprised if it is 60k and so the Blue team can take the lead.

Surrealist's picture

Good point maybe Obama knows in advance what the NFP will be and just could not openly brag and boast with pride about what ihis admin is doing, knowing well the next two days America gets belted with a poor NFP print.

dick cheneys ghost's picture

Is it possible that Obummer is going to/trying to 'Throw' the election?

He must know what is coming down the pike........


westboundnup's picture

Maybe not a disappointing NFP, but knowledge of a "critical" event in the immediate future might explain the resigned nature of his performance.

DeadFred's picture

So many possibilities on that list.

Bringin It's picture

Where is the Andrew McGuire take on the NFP number?

knukles's picture

The numbers that we've experienced over the past several years for good or bad, whatever direction, are essentially meaningless given the number of unemployed, uncounted unemployed, ignored unemployed, forgotten, thrown away, disguarded, mishandled, disrespected and held meaningless, treated as numbers rather than in a civil manner, real lives of fellow citizens.  Not political pawns....
Until then, who cares.
I'll root, cheer, scream, yell and celebrate when all those out of work who'd even faintly like to work are getting back to work and demand for people is unquenchable.
Until then, it's all rubbish.
Let's not hold our breaths....


palmereldritch's picture

Are these the same people who calculate the inflation rate? Because somehow they are able to get 25% down to 8%...

Robslob's picture

The new normal is when unemployment drops and the market crashes as a sign the Fed will no longer ease....

Cabreado's picture

What a travesty, where GS has to push numbers out, all the while knowing full well they have been killers of the host.

JustObserving's picture

The Birth-Death model can easily add 200,000 jobs to the actual numbers.  So who cares what the number is?  It is just a manipulated number - just like every economic statistic released in the US.

Given that it will have a significant effect on the election, this number will be manipulated upwards tomorrow.

Everybodys All American's picture

The numbers have not mattered for at least two years. No one believes any of this nonsense. The stock market is a joke.

nmewn's picture

90k and the market soars on the BLS Obama swoon.

(BLS stands for Bootlicker Labor Statistics by the way)...just like printing, its all they got...fake reality & lies.

But then, theres always Monday ;-)

fonzannoon's picture

Whatever the number is, it will be forgotten by 8:45am. Then anyone still watching will be barreled over by rock music and sound bytes of assholes talking like assholes about bullshit followed by the huge debate of apple vs facefart while the asholes run around like maniacs with american flags crashing into each other.

chump666's picture

Goldman is dying to sell this market and increase volatility,  as all volumes have collapsed on EVERYTHING.  So, profits, even for those a-wipes will be lame. 


Yen Cross's picture

That number could be a " Giant Turd", and it wouldn't matter!    Ben and Timmah, are all in on 1/2time jobs!

earleflorida's picture

sorry bout that mate... it's just a rounding error, where the radii is bandied about by a defunct sonar radar, pursuing a tin-foil'd giant squid... 20,000 leagues under 33 liberty? 

new game's picture

outflows, yes for sure, this will not end until a trickle, then what sergie selling to warren, hahaha

adr's picture

More record part time jobs!!!

Holiday hiring is picking up. My wife's store was told to hire 5 seasonal employees, who would get about 6 hours a week by the way, she said she would only hire three.

The three current employees outside the store manager and assistant manager are lucky to get 15 hours a week. With five seasonals added nobody would get more than 8 hours, or one shift per week.


Lost Wages's picture

Whatever happens tomorrow, there is no way tomorrow's number will be a catastrophe. It will be doctored just enough to make everything seem fine, boring, status quo.

ejmoosa's picture

42k....and I have a better method than they have......

ejmoosa's picture

'The August employment report was a disappointment as payrolls grew by only 96,000'


The September # will also be based on an adjusted August # which will we get tomorrow.

I did not see this mentioned in their calculations for September.

Remember to consider that as you hear the experts pontificate on their "estimates" tomorrow.  They do not even know the number from which their estimate should be based off.

My estimate addresses that.



mendigo's picture

The place where I worked until recently 80% of people working in manufacturing are temps of Latin American origin.
They have a small engineering staff and recently hired two "interns" on a temp basis from east Europe (they are paid poorly of course).

The nfp is bullshit, its all bullshit.

I got fed-up with scrambling for crumbs as an engineer so I quit and am now self-employed but income is unsteady. Now my mortgage company can sweat it as my home was purchased at end of 2005 - top ticked it like a cnbc regular.

Speaking of excrement, I visited nyc this weekend and noted that larged parts of the city wreaked of it - I don't mean sewage. Seems that ows is trying to make a point.

My son is in high school and very good in math and science but as I see it he has two choices - government bureaucrat, teacher or soldier.
My daughter is in grade school (public) and they now have here on an internet based math program - they are saving money by not using a textbook and no there is no online book. Its like they are trying to raise a new generation of retail store clerks.

jerry_theking_lawler's picture

i laid off 3 part time contract workers back in early summer....gonna pick the same three (can't find other employment) back up for about 1.5-2 months and lay off again just in time for Christmas....

isn't the obama economy the best ever....