With all eyes hope-full-y transfixed on tomorrow's non-farm payrolls data and its confirmation-biased 'select-a-headline' post-data farce, we thought it worth a look at the noise in the signal and a reminder, as Bloomberg's Joseph Brusuelas notes, the annual benchmark revisions that will be published and likely obliterate everything we thought we knew about job growth (or lack of). As Brusuelas notes, the January jobs report is likely to be better-than-forecast because the weather-impacted December estimate will see upward revisions as firms probably made up for hiring postponed during the previous month. While weather effects may dominate the topline estimate, the underlying trend in hourly and weekly earnings is likely to remain quite weak since it’s not contingent on swings in seasonal patterns.
Via Blomberg's Joseph Brusuelas,
Temperatures in the U.S during January were warmer than normal through the end of the Bureau of Labor Statistics employment reference week ended Jan. 12.
The January jobs report is likely to be better-than-forecast because the weather-impacted December estimate will see upward revisions as firms probably made up for hiring postponed during the previous month. Almost 300,000 new jobs may be added because of the combination of revisions and catch-up hiring, versus the 183,000 forecast according to a Bloomberg survey of economists.
Looking at the previous jobs reports from the past 18 major winter storms, the BLS has revised upward its initial estimate two-thirds of the time.
While first revisions to the initial estimates have not always been that impressive, the broad nature of the slowdown in hiring indicated by the December estimate suggests investors may see an outsized upward revision.
The December estimate saw sharp de-celeration in service sector jobs created, with outright contraction in construction and government additions. Goods-producing and service sector employment will probably see upward revisions in the December data and a resumption of their six-month trends of 19,000 and 148,000.
The ISM non-manufacturing survey indicated an increase in service sector hiring and the Richmond Fed survey pointed to a rise in retail hiring.
There may also be a boost in transportation hiring in the December data given traditional seasonal factors and the demand for shipments around the holidays.
While weather effects may dominate the topline estimate, the underlying trend in hourly and weekly earnings is likely to remain quite weak since it’s not contingent on swings in seasonal patterns. A weak earnings environment is partially a function of the large number of unemployed and underemployed people. On a yearago basis average hourly earnings are up 1.8 percent and average weekly earnings up 1.5 percent. Neither are encouraging if the 3.3 percent level of consumption posted last quarter is to be sustained.
An area of focus will certainly be the direction of the unemployment rate, which may decline to 6.5 percent due to the 1.3 million people who had their emergency unemployment benefits cut at the end 2013 and who therefore may leave the workforce. If the topline estimate exceeds the Bloomberg consensus of 183,000, and the unemployment rate declines to 6.5 percent, investors may be forced to navigate central bank policy confusion.
While the topline gains would be sufficient to keep the withdrawal of policy accommodation on pace, the decline in the unemployment rate may force the Fed to reduce its unemployment threshold to 6 percent from 6.5 percent and to consider pushing back when it begins to normalize its policy rate.
Lastly, the Department of Labor will publish its annual benchmark revisions to its comprehensive estimate of employment on Friday. That should add about 350,000 to the overall level of employment. Even so, the two-month average of the total change in employment should remain at or near the six-month average of 185,000 in private job creation.
via Zero Hedge http://ift.tt/1c7bXr9 Tyler Durden