Goldman Cuts Its NFP Forecast From 50K To 25K

Tyler Durden's picture

Straight from the horse's mouth, in this case Goldman, which agrees with Zero Hedge that the ISM was weaker than perceived below the surface, and also provides an NFP goose egg for tomorrow: "ISM stronger than expected in August, although details of the report are softer than the headline suggests...We are lowering our forecast for tomorrow's nonfarm payroll report to +25k, from +50k previously. The main reason is the accumulation of evidence of weak hiring in late July and August: a sharp deterioration in perceptions of job availability in the latest Conference Board survey, a drop in today's ISM manufacturing employment index, another drop in job advertising, and a soft ADP report. Layoffs seem to have remained low, given steady jobless claims in the 410,000 range, although even here the recent pickup in layoff announcements is a concern." As everyone knows all too well, the difference of 25K people when you are dealing with a sample  of over 100 million has just one name: policy.

Full report:

SM Better Than Expected; Cutting our Payroll Forecast

BOTTOM LINE: ISM stronger than expected in August, although details of the report are softer than the headline suggests. Construction spending report also solid after revisions. However, we are cutting our forecast for nonfarm payroll employment to +25k from +50k due to signs of weak hiring in late July and August.

US-MAP:
ISM 5 (5, +1)
Construction spending 0 (1, 0) with 4 point upward adjustment due to positive revisions

KEY NUMBERS:
ISM index 50.6 in August vs. GS 48.5, median forecast 48.5.
Construction spending -1.3% (mom) in July vs. GS +0.5%, median forecast +0.2%.

MAIN POINTS:
1. The manufacturing ISM declined less than expected to 50.6 in August, down only 0.3 point (versus 2.4 points expected) from July. The details of the report, however, were softer than the headline suggests: while new orders held up (49.6 after 49.2 in July), the production and employment indexes both declined (by 3.7 points to 48.6 and by 1.7 point to 51.8, respectively). Inventories rose (by 3 points to 52.3), pushing the new orders-inventory gap down to -2.7. The prices paid index declined 3.5 points to 55.5.

2. Construction expenditures fell by 1.3% (month-over-month), in contrast to consensus expectations for a small increase. However, the weaker than expected growth rate in July was more than offset by an upward revision to earlier months. The level of total construction expenditures was revised up by 3.6% for July-a large change compared to typical month-to-month variation in this series. We therefore interpret the report as a modest positive. Among the components, the release showed more strength in residential building (once revisions are taken into account), but some weakness in private nonresidential construction and state and local government building.

3. We are lowering our forecast for tomorrow's nonfarm payroll report to +25k, from +50k previously. The main reason is the accumulation of evidence of weak hiring in late July and August: a sharp deterioration in perceptions of job availability in the latest Conference Board survey, a drop in today's ISM manufacturing employment index, another drop in job advertising, and a soft ADP report. Layoffs seem to have remained low, given steady jobless claims in the 410,000 range, although even here the recent pickup in layoff announcements is a concern.