Goldman Expects "Solid" Payrolls Due To "Long Awaited Full Normalization Of Weather Effect"
Here is what Bloomberg' survey sees as consensus for tomorrow's key data:
- Nonfarm payrolls: +218,000
- Private payrolls: +215,000
- Unemployment Rate: 6.6%
- Avg Hourly Earnings: 0.2% MoM, 2.1% YoY
- Avg Weekly Hours: 34.5
Weather is the biggest factor, as Goldman notes...
We forecast a 220k increase in nonfarm payrolls in April, a touch stronger than the consensus estimate of 215k.
We expect private payrolls increased 215k (vs. consensus 215k).
Payroll gains now stand just shy of 200k for February and March and look poised to come in stronger in April. Notably, the employment components of all ten of the major business surveys released so far rose in April, in every case to a level consistent with increased employment. In addition, jobless claims reached a new post-recession low just prior to the April reference week, and continued normalization of weather conditions in April from a still-chilly March could provide a modest additional boost. We also think it is likely that the April report will include substantial positive back-revisions, as has tended to be the case historically.
Arguing for a stronger report:
The employment components of all ten major business surveys available so far improved in April. Among manufacturing surveys, gains were seen in the ISM manufacturing index (+3.6pt to 54.7), the Chicago PMI (+7.8pt to 57.8), and the Philly (+5.2pt to 6.9), Empire (+2.3pt to 8.2), Richmond (+4pt to 4), Kansas City (+3pt to 3), and Dallas (+4.7pt to 19.7) Fed surveys. While the ISM nonmanufacturing index is not yet available, the employment components of the New York Fed's service sector (+4.5pt to 6.2) and the Richmond Fed's service sector survey (+10pt to 6) both improved.
Weather conditions finally returned to seasonal norms in April. Much of the bounce-back from the unseasonably cold and snowy winter was already apparent in the March data. In particular, weekly hours rebounded strongly from disruptions caused by major snowstorms in the previous months. However, measured as the deviation from normal, March was the most unseasonably cold month of the winter, suggesting that some additional room remains for a further weather boost in April.
The four-week moving average of initial claims for unemployment benefits reached a new post-recession low during the April reference week, declining 18k from the March reference week. However, the Labor Department has cautioned in recent weeks that seasonal adjustment of weekly claims is challenging around the Easter holiday and spring break from schools.
Private job gains reported by ADP rose to 220k in April from an initially-reported March gain of 192k. 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.
Both new and total online job ads rose modestly in April. While the series tends to be quite volatile and is a forward-looking rather than coincident indicator, it has printed at a decent level over the last few months.
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 by 2pt to -19.6 in April from an upwardly-revised March base. The index has shown a fairly steady recovery since late 2011, but has stalled in recent months.
Announced layoffs were up on a seasonally-adjusted basis in April, but only modestly, according to Challenger, Gray, and Christmas. The heaviest job cuts in April were seen in the retail and financial sectors. However, job cuts in the health care sector declined from March, suggesting at most a modest impact from layoffs of temporary workers at the end of the sign-up period for health insurance under the Affordable Care Act.
We expect that the unemployment rate declined to 6.6% in April (vs. consensus 6.6%) from an unrounded 6.71% in March. Despite strong employment gains in the household survey this year, the unemployment rate has held steady since December as a result of a 0.4pp increase in labor force participation. As we noted last week, the unemployment rate has recently fallen more quickly and the participation rate has increased more quickly among workers with lower education levels over the last few months.
Average hourly earnings (AHE) are likely to be in focus on Friday following several months of heightened attention to wage growth and labor market slack.
We expect an increase of 0.2% in April (vs. consensus 0.2%).
AHE for all workers were flat in March, likely reflecting the reversal of weather distortions that boosted the gain in February, and rose 2.1% over the past year. Even at this low growth rate, AHE have been rising more quickly than other wage measures. Wednesday's Employment Cost Index showed compensation growth of just 0.3% in Q1 (1.8% year-on-year) and wage & salary growth of just 0.25% in Q1 (1.7% year-on-year), and compensation per hour in the nonfarm business sector rose just 0.3% year-on-year as of 2013Q4.
And here are a smorgasboard of optimistic and pessimistic "economists" perspectives:
UBS's Sam Coffin: 150,000 — "Our forecast reflects a small boost from a residual weather-related rebound and some continued improvement in underlying trends, with a counterweight from unfavorable calendar effects... Within payrolls, incremental strength is likely in manufacturing, retail trade, and information industry payrolls—all of which had slowed, on balance, in recent months. The decline in jobless claims over the past month has been consistent with some labor market improvement. We do see some drag from calendar effects. The gap between the March and April payroll surveys was four weeks. A four-week gap has been associated with below- trend April payrolls in 12 of the last 15 instances (and more recently in 4 of the last 5 instances). We put the downward bias for this month at about 20k and otherwise would have estimated April payrolls at 200k."
High Frequency Economics' Jim O'Sullivan: 185,000 — "...but we are allowing for the recurring pattern of payrolls being under-reported initially, only to be revised up later. Nor are we counting on any additional catch-up for weather effects. The household survey series on the number of people with a job but not at work because of bad weather was back to its normal level in March after being unusually high in February."
Citi's Peter D'Antonio: 225,000 — "We expect another solid gain in payroll employment in April, as the labor market normalizes from the weather distorted readings in December and January. By our estimates, this should be the last reading influenced by winter weather. At this point, we think the trend is still about 180K per month, but we do expect that the running rate will pick up this year toward 200K. Note 1: We can’t rule out that the tail end of the payroll rebound occurs through revisions, rather than a big rise in April. Last month, the headline gain was smaller than we expected, but upward revisions to earlier months made up the difference."
Deutsche Bank's Joe LaVorgna 240,000 — "...claims data showed a new cyclical low for the employment survey period. This is a very positive sign for the labor market that is also being confirmed by the growth in employee tax withholding receipts."
Barclays' Dean Maki: 250,000 — "Both initial and continuing jobless claims have fallen significantly in April, suggesting a more robust pace of job growth than in recent months. We also believe more normal weather conditions than those prevailing earlier in the year will support job creation in April."
Morgan Stanley's Ted Wieseman: 250,000 — "Since the weather started to become less severe in mid-February, jobless claims have shown a big improvement that accelerated in the first half of April, pointing to a significantly reduced pace of firings recently. The 4-week average of initial claims fell to 312,000 in the survey week for the April employment report from 329,500 in March, and 336,500 in February, a seven-year low and very strong level historically. With layoffs declining, as long as hiring rates have at least held steady, net job growth has accelerated. We look for a temporary pickup to a pace moderately above the pre-winter trend near 200,000, reflecting some catch up reversal of winter drags."
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