Payrolls Preview: If Lavorgna Is Right, Citi Fears Asset Markets Will React Badly

Tyler Durden's picture

Goldman Sachs forecasts a 200k increase in non-farm payrolls for March - in line with consensus - and believe last month's 175k print supports the ongoing positive trend (in light of the weather effect). Key employment indicators looked mixed-to-better in March, and despite the continued cold temperatures, less extreme weather conditions overall should give an additional boost to job gains this month. Citi suggests the weather could have knocked 172k off payrolls overall from Dec to Jan and are more hopeful, expecting a 240k print. Their biggest fear, a greater than 275k print (which is the high bar that Joe Lavorgna has set) could see asset markets reacting badly (on the basis of quicker Fed tightening).



As Citi's Stephen Englander notes,

How much weather in NFP? -- 172k

Conveniently the BLS has published February State employment data so we can estimate ‘weather corrected’ national data based on how employment is less affected  parts of country evolved. We estimate a variety of models to project national NFP from six states – California, Texas, Washington, Oregon, New Mexico and Arizona. We average their projections for December to February to get a composite estimate of national NFP.


Our estimate of the cumulative weather effect based on the average of these models is 172k  over the three affected  months (Dec.-Feb)., with the biggest impact by far in December. Figure 1 shows the average estimate of our eight models. The models differ in estimation period, lags, whether explanatory variables are each state or the sum of all the states, among other dimensions. We don’t have enough experience with these models to be comfortable picking a ‘best’ model but there is enough consistency in their estimates to suggest that they are capturing something.



Across the eight models, the minimum weather effect was 70k, the maximum 251k. None were negative and only one of the eight showed a cumulative weather effect of less than 100k. If anything we would think these estimates may be downward biased since some of these states themselves had episodes of bad weather.  So the risk in our view lies very much on the strong side of estimates.


Our economists estimate 240k, which relative to a baseline of 190k would represent a recovery of about 30% of the weather-related losses. It still looks to us as if investors are lowballing NFP tomorrow, and that the risk is to the topside (acknowledging that the tail of forecasts is a bit more skewed to the upside than to the downside.)


We keep uncovering evidence that  FX crosses are becoming more sensitive to rates moves, particularly in the 2-5 years range so we see upside USD risk, especially versus EUR and JPY,  if our weather-effect estimates are correct. We still see a 200k or lower outcome as risk positive, a 240k or higher as risk negative and 200-240k as the grey area. It may take investors a few days to decide whether a weather bounce is good, bad or indifferent for asset markets. Where we see asset markets reacting badly is if we get a really strong print – say 275k+ - which would suggest a strong snapback. Investors would likely view this as an indication of a US economy that cannot wait to  burst out of the box. We think this would be risk-negative for asset markets since it would point to a quicker Fed tightening of liquidity. This is clearly a minority view with equities at all-time highs.

Goldman Sachs' David Mericle is less positive (right at consensus 200k)...

We forecast a 200,000 increase in nonfarm payrolls in March, in line with consensus expectations. We view the reasonably solid February gain of 175,000 despite extremely adverse weather conditions as providing some confirmation that the underlying trend growth rate of payrolls remains solid. Key employment indicators looked mixed-to-better in March, and despite the continued cold temperatures, less extreme weather conditions overall should give an additional boost to job gains this month.


We expect that the unemployment rate declined to 6.6% in March (vs. consensus 6.6%). We also expect that hours worked, which tend to show a larger impact from severe weather conditions, will rebound from their February decline. As the flip side of this rebound in hours, we expect a softer +0.1% gain in average hourly earnings (vs. consensus +0.2%) as last month's unusually large gain--likely driven by weather distortions--partially reverses.


We forecast a 200,000 increase in nonfarm payrolls in March, in line with the consensus estimate of 200,000. We expect private payrolls increased 195,000 (vs. consensus 200,000). While the average payroll gain seen over the last three months now stands at a disappointing 129,000, adverse weather conditions have weighed heavily on the economic data in recent months, and we would instead view the six-month average of 177,000 or the 12-month average of 180,000 as better approximations of the trend rate of payroll growth. We expect March payrolls gains to come in a bit higher than that, reflecting both the improvement in weather conditions and the month's mixed-to-better employment indicators summarized below.

Arguing for a stronger report

As we noted earlier this week, despite cold temperatures in March as a whole, weather conditions showed a considerable improvement from February in two senses. First, our rule-of-thumb for the effect of temperatures on payrolls--which places 50% weight on the reference week itself and 25% on each of the two prior weeks--points to a moderate improvement from February to March. Second, there were no major snowstorms in March, while there was a major storm from Tuesday-Friday during the reference week in February and another major storm two weeks before the reference week. We expect weather to provide a roughly 25k boost in March, with some risk of a softer contribution in recognition of the seemingly more-modest-than-expected weather impact on the February report. While weather should provide a boost in March, the month's colder-than-usual temperatures leave room for additional bounce-back in April, if temperatures normalize.


The four-week moving average of initial claims for unemployment benefits fell 7k to 330k from the February to the March reference week. During the reference week itself, claims dropped to 323k.


Announced layoffs were down 30.2% year-over-year in March after falling 24.4% in February, according to Challenger, Gray, and Christmas. The heaviest job cuts in March were seen in the health care and telecommunications sectors. Challenger noted that the heath care job cuts reflected both lower Medicare reimbursements and layoffs of temporary workers at the end of the sign-up period for health insurance under the Affordable Care Act.


Private job gains reported by ADP rose strongly to 191k in March from an initially-reported February gain of 139k. In addition, the ADP report tends to show less weather impact than the official payrolls report. At their current level, ADP job gains are close to the roughly 200k trend seen in the second half of 2013. That said, we attach only limited weight to the ADP report because its initial print has yet to prove itself as a reliable indicator of payroll job growth as measured by the Labor Department.

Arguing for a weaker report

The labor differential?the difference in the percentage of respondents in the Conference Board's consumer confidence survey describing jobs as plentiful vs. hard to get?worsened slightly by 0.9pt to -19.9 in March, following four months of consistent improvement. The index has shown a fairly steady recovery since late 2011.

Neutral indicators

The employment component of the ISM nonmanufacturing index--the single best survey measure of employment growth--recovered most of its sharp February drop, rising 6.1pt in March to 53.6, a level indicating a moderate rate of expansion. However, the employment components of the Richmond Fed and New York Fed service sector surveys showed declines in March. In addition, the employment components of the major manufacturing surveys were also weaker this month, with the ISM manufacturing, Chicago PMI, Philly Fed, and Empire all showing declines but remaining in neutral-to-expansionary territory.

Both new and total online job ads fell substantially in March, to roughly the level seen prior to a spike in February. However, this series tends to be quite volatile and is a forward-looking rather than coincident indicator, meaning that the February jump is likely to have some positive impact on the March data that roughly offsets this month's decline.

Overall, we view the softer job gains seen this winter as a temporary deviation from a still-strong trend. While weather conditions remained far from normal in March, the improvement from last month should provide at least some boost. As growth accelerates later in 2014, we expect the trend rate of payrolls growth to rise to about 225,000 per month.

We expect that the unemployment rate ticked down to 6.6% (vs. consensus 6.6%) in March from an unrounded 6.72% in February. We also expect average weekly hours to reverse last month's decline, which was probably weather-related. As the flip side of the rebound in hours, we expect average hourly earnings to post a softer +0.1% gain (vs. consensus +0.2%) in March after a stronger-than-usual +0.4% jump in February. While this strong print led some commentators to suspect that wage growth might be picking up, we suspect that it was largely a statistical artifact caused by the severe weather conditions in February, which probably shifted the composition of the workforce toward salaried and away from hourly workers.

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Ned Zeppelin's picture

The examination of chicken entrails - mere guesses that mean nothing at all.

Two-bits's picture

It was all in the last sentence:


 While this strong print led some commentators to suspect that wage growth might be picking up, we suspect that it was largely a statistical artifact caused by the severe weather conditions in February, which probably shifted the composition of the workforce toward salaried and away from hourly workers.


Baby it's cold outside.

spastic_colon's picture

the whole analysis is abject bullshit.....the market and party in power will cheer the fact that tomorrows number will be higher than forecast jobs and lower (under 6.5%) UE.....this is the planned glidepath now that the impediments of have been removed.


none of the potential outcomes is bad news for the "market".....its just which is least expected and most bullish.


My prediction..........260,000 and 6.2%...........the perfect numbers


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knukles's picture

The only fucking people who didn't fucking work during the winter months were the fucking government employees.

Who the fuck is kidding whom?

Alpo for Granny's picture




High #=Gold SMASHED and does not recover the rest of the day

Low #=Gold pops and the algos melt it down to nearly unchanged for the day.

NOTW777's picture

LOL - a "fed tightening?"

Fidel Sarcastro's picture

In the title..."if LaVorgnia is right..."

Is that a joke?  When is that fucktard ever right?

Cattender's picture

God i hate the stock market..

BeetleBailey's picture hate the HFT rigged casino so-called "market"...that's what you hate.....and rightly so....

Unknown Poster's picture

Just a made up number.

CrashisOptimistic's picture

Well, true, but at least it's seasonally adjusted.

knukles's picture

So is the 4th quarter when the seasonals add or subtract from the bullshit?

FieldingMellish's picture

The Law of Government Statistics says that bullshit can NEVER be subtracted.

IndicaTive's picture

More rope-a-dope.

Algosaurus Rex's picture

Just a bunch of fucking fiction to feed to the impressionable plebs. Can't wait for the jig to be up...

Kreditanstalt's picture

Who gives a FF about this stuff anyway?

Can't see any jobs around here...just lots of offers of credit coming through my mailbox.

AccreditedEYE's picture

Nobody ever learns a damn thing. NOTHING ends badly when it comes to equity markets. Got that? Nothing. There is only 1 way to go and it isn't down. Let's stop pretending.

FieldingMellish's picture

Exactly. I have no idea what the number will be (it won't be the real figure anyhow) but it WILL be bullish for stawks and bearish for PMs whether its 40K or 400K.

COMEX pushing for a break of $1275 to take gold back down to test (and maybe break) $1180. Tomorrow could be the day.

STG5IVE's picture

I hope it prints 400k and at the next Fed meeting they say:  "That's it!  All good.  No more stimulus.  NEXT!"

BeetleBailey's picture

Stop huffing that crack pipe

naughtius maximus's picture

This is definately bullish

TinF0ilHat's picture

Adding jobs good for Merica, bad for Wall Street because of Fed taper.  So fundementals are out the window then. 

monopoly's picture

Full employment at $10.00 per hour, what could possible go wrong?

BeetleBailey's picture

These fuckholes have been dead wrong for so many months about this fudged, fucked up, stupid made up number.

Fuck the squid...the bunch of cunts that they are.

TheRideNeverEnds's picture

React badly as in only up 20 points or badly as in only up 30 points?  There is no question we are going higher... none.  Stone cold lead pipe lock of the week.

Yen Cross's picture

     This ZIRP shit has got to stop! It's sickening that the markets are so addicted to central bank infusions of cash that bad news is considered good news in hope of additional liquidity. It's amazing that the markets have become so distorted that they discount bad news because of their addiction to the Feds. current and possible future cash handouts. What happens when the Fed. publicly spools back up liquidity/qe and traders look for places to park the cash?

   They're going to run to shitiest highest yielding assets/junk is what's going to happen. (and blow this bubble even bigger) The P/Es of most corps. are already stretched to ridiculous levels and credit is levered to the hilt. The GDP estimates are being lowered and demand in general is shrinking as people are becoming increasingly cash and credit starved globally.

   It's not as if the parasites on W.S. don't have other conduits of liquidity to tap. (reverse repos) This shit has been going on for (6) years and what the hell do we have to show for it? Sure high end businesses have made out like bandits. The middle class has been forced into rental servitude, and they can't even get affordable health care to boot. The price of fuel and food has almost doubled, but at least we have a 50 million strong "Free Shit Army". This shit needs to end.

NOZZLE's picture

you have as much chance of getting a 275K print as a one legged man ass kicking contest. 


I mean come on when is this nonsense going to come to an end, you are looking at three more years of subpar employment numbers untill boobock supreme is outa White House.

Villageidiot777's picture

It'll be something like 250.785,14159265359...

easypoint's picture

195 to 200k and gold still gets softly slammed but recovers, mostly. Stocks up but back down to even or slight positive.

My logic is that too high a number would pressure the Fed to move toward faster taper and tighten and too low would undermine the "recovery around the corner" story. The Fed won't be forced to do anything by a number that they have some control over. After all it's just a number from the govt. and the game is all about controling the extreme reactions.

This opinion and 5 FRNs will get you a cup of coffee.

starman's picture

Look around you go  in to any store the workers are part time college kids! 

That what makes up this totally faked "recovering" economy!

Since 2008 this country is sinking in to the  abyss! 

walküre's picture

Plantations never knew unemployment

That's the new lifestyle for 99%

Calculus99's picture

Come summer they'll blame any problems on it being 'too hot'.

Quinvarius's picture

It is amazing how myopic the bankers are.  There is nothing that will make the US economy stop its 40 year decline except a complete revamp of our banking/monetary system, tax structure, and government leech spending and debt.  There is nothing, NOTHING, that will change the decline of the West and the rise of gold.  If you put in the same inputs that everyone else used throughout history, you get the same results.  A bunch of 20 something noob bankers making sheep bets.  You know what the stock market is predicting right now by rising?  NOTHING.  Same as in the 90's.  You know what gold is predicting by dipping?  Nothing.  Same as in the 90's.  The outcome is going to be the same as it ever was.  Dead economy means dead companies.  Dead money means return to honest money.  Our economic data points mean nothing.  Even if they are accurate, they are traded only by fools. 

1stepcloser's picture

The Fed made their bed, let Six Sigma Joe sleep in it.

d edwards's picture

What difference does it make-the numbers are all bullshit anyway!