With most analysts and strategists on Wall Street puzzled by the bizarre divergence between the Establishment and Household Surveys in today's jobs report, as the former suggested employment rose just 0.1% in November, while the latter suggests employment surged by 0.7%, a divergence that was summarized best by Danny Dayan, CIO at Dwd Partners, who said this was “one of the weirdest reports I have ever seen", Goldman has decided to make life simple for itself and in his post-mortem, Goldman's chief economist Jan Hatzius steamrolls the negative data while praising the positive, to wit: "Nonfarm payrolls rose 210k in November, 340k below consensus. The household survey was significantly stronger however, with 1.1mn job gains—or 1.9mn after adjusting to match the nonfarm payroll methodology. The unemployment rate declined 0.4pp to 4.2% despite rebounding labor force participation."
Hatzius then echoes our observation by pointing out that the seasonal adjustment factor was likely skewed, noting that "the payroll survey response rate was the lowest for a November in 13 years," while the payroll seasonal factors were also more restrictive than Goldman expected (by around 100k). As such Goldman places "more weight than usual on the household survey this month." Here is why:
The household survey was extremely strong, as employment increased by 1.1mn, the employment to population ratio increased by 0.4pp to 59.2%, the labor force participation rate increased by 0.2pp to 61.8%, and the unemployment rate fell by 0.4pp to 4.2%. Adjusted measures were even stronger, as the employment measure adjusted to reflect payrolls methodology increased by 1.9mn, due to declines in the number of workers on unpaid absence (-266k), that had a job but weren’t at work (-248k), and that are self-employed (-186k). The U6 underemployment rate also improved (-0.5pp to 7.8%), reflecting the increase in employment and a drop in the number of part-time workers for economic reasons (-137k). The number of workers reporting being on temporary layoff declined a bit (-141k to 801k) while the number of permanent job losers also declined (-205k to 1,921k). As a result, the share of unemployed workers that reported being on temporary layoff decreased by 2.7pp to 11.8% and is now below its pre-pandemic level (13.7% in 2019).
Goldman then also notes that its composition-corrected wage tracker stands at +4.0% in Q3, signaling a pace of wage growth that is notably higher than last cycle but still consistent with the Fed’s goal. Meanwhile, composition-adjusted wage growth had been running at a 5-6% annualized pace of wage growth in Q2 and Q3, that, if sustained, would likely be inconsistent with the Fed’s inflation goal although "the sequential slowdown in AHE growth in October and November suggests that wage growth will cool now that unemployment benefits have expired."
And so, even though hourly earnings rose at the slowest monthly pace since March, Hatzius is confident that this time his Fed forecast will be correct and says that he "continues to expect the FOMC to double the pace of tapering at the December meeting and then to deliver the first rate hike in June 2022."
Of course, when the Omicron strain leads to widespread shutdowns, an economic lockdown and massive layoffs putting the Fed's tightening cycle on indefinite hiatus, expect Goldman to promptly revise its uberhawkish forecast because nobody on Wall Street can possibly see things developing before they actually take place.