When all else fails, pre-emptively blame the weather...
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h/t @RudyHavenstein
In other words, today's market-closed narrative will be:
- if the number is 'good' - then it shows the resilience of the US economy (in spite of weather) and fits perfectly with The Fed's clearly positive stance to raising rates now that the US economy is resurgent...
- and if the number is 'bad' - then it is transitorily due to the weather, enables The Fed to delay its rate hike slightly, and is thus bullish for stocks.
Because, when ISM is weak and ADP is weak what else could it be but the weather?
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And Goldman expects nonfarm payroll job growth of 220k in March, below the consensus forecast of 245k.
Labor market indicators were generally flat or weaker in March, suggesting payroll growth somewhat below the recent trend. We expect the unemployment rate to remain unchanged at 5.5% and average hourly earnings to rise 0.2%, roughly in line with the recent trend rate of wage growth.
We forecast nonfarm payroll job growth of 220k in March, below the consensus forecast of 245k and a downward revision from our previous estimate of 240k. Payroll employment rose 295k in February, surpassing consensus expectations for the third consecutive month. In March, most labor market indicators were flat or weaker, suggesting payroll growth somewhat below the recent trend.
Arguing for a stronger report:
Recent trend. Payroll gains have been very strong recently, averaging 288k/293k/275k over the last 3/6/12 months. While we expect average employment gains to soften going forward, the recent average is solidly above the consensus forecast of 245k for March.
Arguing for a weaker report:
Jobless claims. The four-week moving average of initial jobless claims leading into the payroll reference week rose 22k to 305k. Seasonally-adjusted weekly claims in Texas have risen notably since the start of the year, likely reflecting the effect of lower oil prices on energy-sector employment.
ADP report. ADP employment gains were below consensus expectations in March at 189k, the smallest initially-reported increase since last May. While service-sector employment held up, goods-sector employment softened, including a slight decline in manufacturing employment. In general, initial print ADP estimates have not been strong predictors of initial print payroll gains reported by the Labor Department.
Manufacturing employment indicators. The employment components of most of the major manufacturing surveys were soft in March. The employment component of the ISM manufacturing index fell 1.4pt to 50.0 and the employment component of the Chicago PMI rose 0.5pt to 50.3, indicating flat employment in both cases. Among the employment components of the regional Fed surveys, Philly, Kansas City, and Dallas all declined to a level indicating roughly flat employment, while Richmond rose slightly and New York rose more substantially. The Markit PMI's employment component also increased slightly. Payroll employment growth in the manufacturing sector slowed to just 8k in February, below the average gain of 17k seen over the last year. Both the hard and the soft manufacturing data have been weaker in recent months, likely reflecting drag from the strong dollar.
Job cuts. Announced jobs cuts reported by the Challenger, Gray and Christmas report--which tend to be an early indicator of actual layoffs--were somewhat elevated over the last two months, with cuts in the energy sector in particular about 15-20k above the recent trend. In March, announced cuts both in the energy sector and overall returned to normal. We expect an eventual hit to energy sector employment of as much as 60-70k by mid-year. Consistent with energy sector weakness, recent employment indicators for the state of Texas have been somewhat weaker than for the country as a whole. Also in the energy sector, the impact of the recent refinery strike on payroll employment should be roughly the same in March as in February, as the total number of workers reported as being on strike during the payrolls reference week was little changed.
Neutral factors:
Service sector surveys. The March ISM nonmanufacturing survey has not yet been released. The employment component of the Markit services PMI rose in the flash print, but the final print for March has also not yet been released. The employment components of regional Fed surveys were mixed, with Richmond rising slightly to a somewhat expansionary level, New York falling slightly to a still solidly expansionary level, and Dallas falling more substantially to an only modestly expansionary level. Service-sector employment gains rose to 259k in February and averaged 222k over the last year. However, consumer spending on services has been disappointing over the last couple of months.
Online job ads. According to the Conference Board's Help Wanted Online (HWOL) report, both new and total online job ads held roughly steady in March. Gains were strongest in the professional services categories, while the largest decline came in the transportation category. At the state level, Texas experienced the largest decline in March.
Job availability. The Conference Board's labor differential—the net percent of households reporting jobs are plentiful vs. hard to get—was unchanged at -4.8 in March. The index improved sharply in January but has held steady since then.
Weather. Our method for estimating the impact on payrolls of snowstorms and temperature deviations from seasonal norms suggests that the net impact of weather conditions on employment likely changed little from February to March. March brought relief from the series of major snowstorms that occurred in the run-up to the February reference week. However, the four weeks leading into the March reference week also saw much colder-than-usual temperatures, including the two most extreme (coldest) weekly deviations from average temperatures in the 18-year history of the weekly data at the end of February. The net effect should be roughly neutral.
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We expect the unemployment rate to remain at 5.5% in March, from an unrounded 5.545% in February. The FOMC reduced its estimate of the structural rate of unemployment by 0.25 percentage points to 5.1% in the March Summary of Economic Projections, a rate it expects to reach by 2015Q4. The unemployment rate declined by 1.2pp over the last year and the U6 underemployment rate declined by 1.6pp.
We expect a 0.2% increase in average hourly earnings in March, roughly in line with the recent trend. Average hourly earnings for all workers rose 2.0% over the year ending in February, a bit softer than the growth of the employment cost index and compensation per hour in the national accounts. We expect wage growth to pick up to around 2.75% by year-end, still below the 3-4% rate of wage growth that Fed Chair Janet Yellen has identified as normal. Despite modest nominal wage growth, growth in employment and hours worked have fueled strong total labor income growth, with the aggregate weekly payrolls index up 5.4% over the last year or roughly 5% in real terms.
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US equity futures are limping higher in the pre-payrolls period...
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