Goldman Previews Today's Jobs Number: "Prospects For Near-Term Improvement Look Dim"

Tyler Durden's picture

Today's NFP number will be, as usual, critical. On one hand, Obama needs an ugly number to get the bipartisan support urgently needed to pass his jobs bill. On the same hand, Bernanke needs the market to drop, and the short covering rally to end and the market to plunge in order to have a carte blanche backstop for QE3 when the GDP prints negative. On the other, a sub zero NFP will send stocks into a tailspin, and facilitate the drop into a full out recession, with the "wealth effect" disappearing even for the "1%." To make some sense out of what to expect in under one hour, here is Goldman's Andrew Tilton with a full, and surprisingly downbeat, preview of what to expect. "The September employment report should look slightly better than its predecessor, at least on the surface. The underlying trend in hiring still appears very weak, perhaps even weaker than August. But recent US growth data have been mildly encouraging, layoffs have stayed fairly low and the headline payroll number will be boosted by the return of 45,000 striking communications workers. We expect a gain of 50,000 nonfarm payroll jobs, with the unemployment rate holding steady for a third straight month at 9.1%."

From Goldman Sachs:

With government support for the economy apt to decrease in the coming year as spending cuts are implemented and some short-term stimulus measures expire, the labor market will become even more important to sustaining economic growth. After accounting for inflation and tax changes, household income is up only 0.3% year-over-year. With fiscal stimulus fading and little easing in key commodity prices (particularly gasoline) thus far, better labor income growth is therefore key.

Unfortunately, the prospects for near-term improvement look dim. We summarized last month's employment report, which featured a stall in payrolls and an unchanged unemployment rate, with the comment that "Barring further shocks to the economy—most prominently, European financial stress and the potential for much tighter US fiscal policy in 2012—recent employment trends point neither to much further deterioration nor to substantial improvement." (See "Four Perspectives on the August Employment Report", US Daily, September 6.) What's changed since then? Clearly, the economic outlook has darkened, with the main culprit the intensification of financial and sovereign stress in Europe. Our European team now forecasts a recession in the Euro area beginning in the fourth quarter. We also see slower growth in the US economy over the year ahead, though recession is still not our base-case forecast.

In terms of labor market indicators specifically, the latest news suggests that in September:

1. Hiring was very soft, possibly even softer than August. The chart below illustrates two measures of hiring activity: the number of new online job advertisements (as tallied by the Conference Board) and the share of businesses reporting an increase in employment (from the detail of the Institute for Supply Management's monthly non-manufacturing survey). Job postings stabilized in September, after falling in the prior two months; that could be considered a modestly positive sign. But the share of service-sector businesses reporting increases in employment continued to decline in September, suggesting that hiring weakened further; as this particular survey was conducted late in the month (after the employment survey) it is unclear how much effect we'll see in tomorrow's numbers, but it doesn't bode well for October payrolls--the ISM survey seems to have led job advertising slightly over the past few years. Meanwhile, the September ADP Employment Report suggested a similar underlying pace of employment growth as in August.
Hiring on Hold?

2. Layoffs increased slightly. As of the week of September 11-17 (the week the employment survey was conducted), the four-week moving average of new jobless claims was 422k, up from 404k in August, suggesting a slight increase in the rate of job cuts. The latest Challenger, Gray, and Christmas survey showed a sharp rise in layoff announcements in September, to 115,700 from a monthly average of 45,000 in January-August. However, almost the entire increase was accounted for by a reduction in US Army employment and the announcement from Bank of America that it would reduce employment by 30,000 (which is based on a three year plan and thus likely overstates the near term impact), so we don't see this as a definitive sign that layoffs have increased sharply.

3. Strikers returned to work. In August, approximately 45,000 communications workers were on strike, depressing the reported payrolls number (workers need to receive pay during the reference pay period to be counted as employed). Those workers will be back on payrolls in September, for a net swing of +90,000 in the level of payrolls -- so the hiring trend would have to have deteriorated quite significantly for this payroll report not to show some improvement.

In sum, the return of striking workers should keep payroll growth in positive territory despite what may be a deterioration in the underlying pace of hiring, as well as a slightly higher pace of layoffs. We expect the September payroll report to show a gain of 50,000 nonfarm payroll jobs. With ongoing losses in government employment (somewhat more uncertain this month, as state and local educational employment often shows large changes in September), this is consistent with an increase of approximately 75,000 in private sector payrolls. Given our expectations for a small gain in overall employment, we forecast no change in the unemployment rate in September; if correct, this would be the third consecutive month at 9.1%. Average hourly earnings are likely to show weak growth, up 0.1% on the month.

Under the surface, the combination of a slowdown in hiring with (at least so far) no big increase in layoffs is consistent with a sharp increase in economic uncertainty--causing businesses to freeze hiring plans, but not yet inflicting the economic damage that would prompt an outright reduction in employment. If this uncertainty is resolved in the short run, we could see a temporary surge in employment as firms catch up on postponed hiring plans. But the longer uncertainty persists, the greater the risk of a vicious cycle of weaker hiring, weaker income, and weaker demand that ultimately ends in recession. This is why employment and the unemployment rate are such useful indicators of whether economic growth has fallen below "stall speed", and so closely followed by markets.

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Dick Darlington's picture

 Oct. 7 (Bloomberg) -- U.S. small businesses hired fewer
employees in Sept. than the previous month, according to the
SurePayroll small business hiring index.
     Small business hirings fell -0.18 percent in Sept. from the
previous month, while employee pay fell 0.1 percent. The index
tracks payroll data from more than 15,000 small businesses to
calculate the indexes.
                         Sept.   Aug.   July   June    May  April  March   Feb.
                          2011   2011   2011   2011   2011   2011   2011   2011
National hiring index    -3.1%  -2.9%  -2.6%  -2.3%  -2.1%  -1.8%  -1.5%   0.6%
 Midwest                 -4.0%  -3.7%  -3.7%  -3.6%  -3.4%  -2.8%  -2.2%   0.1%
 Northeast               -3.6%  -3.0%  -2.5%  -2.0%  -1.7%  -1.4% -90.1%   0.4%
 South                    1.0%   1.2%   1.3%   1.2%   1.3%   1.3%   1.2%   2.7%
 West                    -7.8%  -7.1%  -6.5%  -5.9%  -5.5%  -5.1%  -4.7%  -1.8%

Chicago bear's picture

The print will be right in the middle of the muddle.

Snidley Whipsnae's picture

"Prospects for near term improvemet look dim"

Sounds like the same guy is writing for GS and Bernanke.

oldman's picture


I am going to retire and make room for someone who needs work. I have been counting waves in the Bay of Biscay for the past five weeks, so this job is open and not too physically demanding at this time of year, but bring heavy-weather clothing because we are entering winter and the storms can be fierce.


props2009's picture

RBS says it is +60k

Sequitur's picture

Fuck the NFP, who gives a shit. Light the goddamn Greece roman candle and let the sparks ignite France, Italy, Spain.

firstdivision's picture

I'm going to wager a 100K increase. 

jmcadg's picture

So anything below 45k is actually a minus figure taking into account Verizon workers.
And an outright minus figure is catastrophic?

Europe will not be fixed. Merkel and Sarkozy meet for the 8th time! Please. 
How many times does Germany have to say no more bailouts.

Market crash required before Ben starts printing.

We can carry on dreaming, but this shaken up can that has been kicked down the road, has now been opened and they're trying to put the cola back in. It's pitiful.

Antifaschistische's picture

TPTB know they need inflation before they can get the job numbers they really want.  

Inflation lowers the real cost of labor with goods rising immediately and labor laging...

Lowering the real cost of labor will stimulate hiring...

But they're in a bind with all the blog/street level rebellion against the Fed and Wall Street.

End the Fed!


kito's picture

There are seasonal hirings already underway in our area. I wager 50,000 increase

msmith's picture

Selling a positve move in the markets as a reaction to the NFP data.  Bearish USD Index in the short term though.  The EURUSD may be preparing to resume the downtrend, but the AUDUSD may continue to correct higher.  It looks like some downside consolidation is ahead for the S&P Index but more upside should follow.

Snidley Whipsnae's picture

The US Gov is doing their best to hire people; ie, people to track every movement and utterance of every person in the US... and, probably the rest of the world. If you are seeking employment and enjoy shuffling mountains of paper and listening to private conversations of others... Why not become a paid snoop? No doubt we already have some among the posters here.

Of course, what happens to these massive programs to gather info on every last individual is that the rats begin telling lies to get a leg up on the rung, and on their rivals and competitors... Then, as happened to the Stazi in East Germany, it becomes impossible to sort the lies from real, potentially helpful intelligence.

"* In Washington and the surrounding area, 33 building complexes for top-secret intelligence work are under construction or have been built since September 2001. Together they occupy the equivalent of almost three Pentagons or 22 U.S. Capitol buildings - about 17 million square feet of space."

"* Some 1,271 government organizations and 1,931 private companies work on programs related to counterterrorism, homeland security and intelligence in about 10,000 locations across the United States."

"The top-secret world the government created in response to the terrorist attacks of Sept. 11, 2001, has become so large, so unwieldy and so secretive that no one knows how much money it costs, how many people it employs, how many programs exist within it or exactly how many agencies do the same work.



These are some of the findings of a two-year investigation by The Washington Post that discovered what amounts to an alternative geography of the United States, a Top Secret America hidden from public view and lacking in thorough oversight. After nine years of unprecedented spending and growth, the result is that the system put in place to keep the United States safe is so massive that its effectiveness is impossible to determine."

"* Analysts who make sense of documents and conversations obtained by foreign and domestic spying share their judgment by publishing 50,000 intelligence reports each year - a volume so large that many are routinely ignored."

"There has been so much growth since 9/11 that getting your arms around that - not just for the CIA, for the secretary of defense - is a challenge," Defense Secretary Robert M. Gates said in an interview with The Post last week.

In the Department of Defense, where more than two-thirds of the intelligence programs reside, only a handful of senior officials - called Super Users - have the ability to even know about all the department's activities. But as two of the Super Users indicated in interviews, there is simply no way they can keep up with the nation's most sensitive work.

"I'm not going to live long enough to be briefed on everything" was how one Super User put it. The other recounted that for his initial briefing, he was escorted into a tiny, dark room, seated at a small table and told he couldn't take notes. Program after program began flashing on a screen, he said, until he yelled ''Stop!" in frustration.

"I wasn't remembering any of it," he said.

Underscoring the seriousness of these issues are the conclusions of retired Army Lt. Gen. John R. Vines, who was asked last year to review the method for tracking the Defense Department's most sensitive programs. Vines, who once commanded 145,000 troops in Iraq and is familiar with complex problems, was stunned by what he discovered.

"I'm not aware of any agency with the authority, responsibility or a process in place to coordinate all these interagency and commercial activities," he said in an interview. "The complexity of this system defies description."

shaxmatist's picture


Completely and utterly wrong prediction

karmete's picture

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