Payrolls Preview: Goldman Says 'Beat', Fed Regional Surveys Signal 'Huge Miss'

Goldman forecasts nonfarm payroll growth of 215k in September, above consensus expectations of 200k by about 0.3 standard deviations of a typical surprise. Noting that August payrolls were likely distorted downward by seasonal bias last month and may be revised up, Goldman expects the unemployment rate to remain flat at 5.1% (and earnings growth to slow). Howver, judging by the collapse in September's regional Fed surveys, today's "most important" payrolls data ever could be a massive miss.

As Goldman Sachs details,
We forecast nonfarm payroll job growth of 215k in September, which would be a roughly 0.3 standard deviation surprise to consensus expectations of 200k. The employment components of business surveys were softer on net this month, but ADP surprised on the upside, reported job availability improved slightly, and government employment gains should again make an above-trend contribution. Overall, we expect a gain roughly in line with the 212k average seen so far in 2015.

Arguing for a stronger report:

  • Job availability. The Conference Board's labor differential—the net percent of households reporting jobs are plentiful vs. hard to get—rose a touch further in September (+0.4pt to 0.8), confirming the large increase in August that pushed the indicator into positive territory for the first time since January 2008.
  • ADP report. ADP beat expectations in September, rising 200k. Construction employment grew 35k, the largest increase in over a year, but manufacturing employment fell 15k, suggesting that last month’s weakness in manufacturing payroll employment might continue.
  • Government employment. A mix of seasonal and fundamental factors has boosted government hiring over the last three months, with the gains coming primarily from education. We expect this recent pickup—which has increased government payroll growth about 20k above the prior trend—to persist in September but fade thereafter.

Neutral factors:

  • Jobless claims. The four-week moving average of initial jobless claims in the payrolls reference week was little changed from August to September.

Arguing for a weaker report:

  • Service sector surveys. The employment components of the Markit PMI, New York Fed (-5.2pt to 10.6), Richmond Fed (-13pt to +5), and Dallas Fed (-3.9pt to +2.2) surveys all declined. The ISM non-manufacturing index will not be released until next Monday. Service-sector employment gains fell to 164k in August, a sharp decline from the 211k average over the last year that likely reflected seasonal bias.
  • Manufacturing employment indicators. While the major manufacturing surveys have been weaker on net so far in September, their employment components have been a bit more mixed. The employment components rose in the Chicago PMI, Philly Fed (+4.9pt to 10.2), Richmond Fed (+2 to 3), and Kansas City Fed (+3pt to -7) surveys, but declined in the ISM manufacturing (-0.7pt to 50.5), Markit PMI, NY Fed (-8pt to -6.2), and Dallas Fed (-4.7pt to -6.1) surveys. Payroll employment in the manufacturing sector dropped 17k in August, the first decline since mid-2013. The manufacturing sector is more exposed to international trade than the service sector and may be suffering at the moment from renewed dollar appreciation and weak demand abroad. Overall, while we do not expect to see as large of a decline this month, we do expect continued weakness in manufacturing employment.
  • Online job ads. The Conference Board's Help Wanted Online (HWOL) report showed a decline in both new and total online job ads in September, continuing the softer trend seen over the previous few months. The decline in job ads in September occurred across all major geographic regions. Among occupational categories, the largest declines came in office and administrative support, food preparation, and transportation. The weakness in online job ads this month is tempered somewhat by the strong growth in jobs ads as measured by the JOLTS data in past months and by our finding that the openings rate has become a less effective predictor of payroll growth recently.
  • Job cuts. Announced jobs cuts reported by the Challenger, Gray and Christmas report rose modestly in September on a seasonally adjusted basis, primarily in the computer industry.

We also expect a substantial upward revision to August payrolls. Since 2003, the five industries with the clearest August bias have had an average August deceleration of 40k relative to the prior three months and a subsequent upward revision of 35k. This year, these industries decelerated by a combined 56k, and the deceleration excluding government payrolls was 83k.

We expect the unemployment rate to remain at 5.1% in September from an unrounded 5.11% in August, but it’s a close call. The participation rate has held steady over the last two months, and if it remains unchanged this month then a gain on employment as measured by the household survey in line with our payrolls forecast would leave the unemployment rate on the border between rounding to 5.0% and 5.1%. The headline U3 unemployment rate declined by 1 percentage point (pp) over the last year and the broader U6 underemployment rate declined by 1.7pp. At 5.1%, the unemployment rate is currently two-tenths above the FOMC’s estimate of the longer run or “structural” rate.

We expect a softer 0.1% increase in average hourly earnings for all workers in September due to calendar effects, which likely also contributed to last month’s above-trend 0.3% gain. Average hourly earnings for all workers rose 2.2% over the last year, in line with the other major wage indicators.

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So Goldman plants the seed that today's data will confirm everything is awesome and enable The Fed to hike rates "as planned" in December.

However... based on the collapse of all 6 regional Fed surveys...


Which implies a shocking miss (drop) in payrolls...


Of course - The BLS will merely print what has been ordered, even though the market seems far less confident of a rate-hike-inspiring jobs print...


Charts: Bloomberg