At 8:30am Eastern, the BLS will report the March payrolls report: the median forecast calls for a March nonfarm payrolls gain of 205k vs 242k in Feb., the high estimate is 250k, the low is 100k. The number is released three days after a particularly dovish Yellen speech, which prompted many to ask “what does the Fed know” – today’s payrolls report will either provide the answer, if it is a big miss, or it will add to the confusion: if payrolls are surging, why is the Fed so concerned.
This is the breakdown of NFP expectations by bank:
- DB 175k
- BNP 180k
- HSBC 185k
- MS 205k
- Citi 215k
- GS 220k
- JP 225k
- UBS 230k
The whisper number for today’s print has meandered modestly lower in recent hours as a result of an analysis by Bloomberg showing that in 7 of the past 8 years, March payrolls have missed expectations. From the source:
March is the cruelest month for U.S. nonfarm payrolls as the published data came below estimates in seven of past eight years. From 2008, actual release numbers fell short of the median in Bloomberg survey forecasts by an average of approximately 53,000.
Since 2000, March headline total nonfarm payroll numbers missed estimates 67 percent of the time by an average of approximately 69,000. In March 2015, the headline number was 119,000 below estimates, the biggest miss since 2001.
While the usual confusion prevails among sellside reports, two stand out. The first out is from Citi’s Steven Englander who writes that “bad news is bad news, good news is ‘who cares?“
NFP – bad news is bad news because investors do not believe that the Fed has enough tools to deal with a significant slump. Markets probably will not over-react to a modest shortfall in NFP. But if the numbers came in soft and were revised down heavily in prior months (say in line with GDPNow’s 0.6% GDP forecast), it is unlikely that investors will be sufficiently convinced of the adequacy of the Fed’s tools. Neither we nor our economists expect this such a weak outcome, but her insistence of the power of the Fed’s tools sound more like an effort to jolly asset markets into reducing the weight placed on downside tail scenarios.
Good news is ‘who cares?’ because the Fed will just argue that low rates were responsible for the continued good economic outcomes and will use it as vindication of policy, rather than as a contradiction.
On the surprising side, we have Joe LaVorgna, formerly the biggest Wall Street permabull, with the lowest forecast among the big banks. Here is DB:
Current market expectations for nonfarm payrolls are sitting at 205k which compares to the 242k number we got back in February. The unemployment rate is expected to hold steady at 4.9% and average hourly earnings are expected to rise +0.2% mom during the month. With all the chatter from recent Fed speakers and also Yellen on the importance of evidence of further signs in wage inflation it will be the key to keep an eye on the latter in particular. Our US economists are a little more cautious ahead of today’s release and despite the trend like ADP reading, have a below consensus 175k forecast for payrolls. They note that this would have the effect of lifting the unemployment rate back to 5.0%, while they are also slightly less optimistic with regards to the earnings data (expect average hourly earnings growth of +0.1% mom).
They note that their forecast for below-trend employment is consistent with their meagre Q1 real GDP growth projection of 0.5%. Another interesting point they make is that they have noticed a recent tendency for the median consensus forecast for March to overestimate the initially-reported March payroll gain. In fact, they highlight that the median forecast for March has over-predicted the initial payroll figure in five out of the last six years.
Which would not help Goldman’s most latest case about the delay of the “Yellen Call“, according to which good news should now be good news. Speaking of Goldman, this is its forecast:
We expect a 220k gain in nonfarm payroll employment in March, above consensus expectations for a 205k gain. Labor market indicators improved on balance from February to March. Jobless claims declined, the employment components of both manufacturing and non-manufacturing business surveys improved, and favorable weather conditions should also provide a boost to job gains. Payroll employment grew 242k in February, in part reflecting a lift from seasonal factors that had depressed reported gains in January, and has risen at an average pace of 228k over the last three months and 223k over the last year.
Arguing for a stronger report:
- Service sector surveys.
- Manufacturing surveys.
- Jobless Claims.
- Weather.
Arguing for a weaker report:
- Online job ads.
- Job cuts.
Neutral factors:
- Job availability.
- ADP.
We expect the unemployment rate to remain unchanged at 4.9% in March, but see the risks as tilted slightly to the downside. The headline U3 unemployment rate was unchanged in February at an unrounded 4.92%, about 0.2 percentage points (pp) above our estimate of its structural rate. The broader U6 underemployment rate fell 0.2pp to 9.7% in February, 1pp above our estimate of its structural rate. We expect the labor market to return to roughly full employment by the end of this year.
The unemployment rate has fallen only slightly in recent months despite very large gains in employment reported in the household survey. The reason is that the labor force participation rate has rebounded by 0.5pp since its September low, with increases seen across all age groups. The largest contributors to the rebound have been, in descending order, declines in the share of the population in school, retired, disabled, and not wanting to work. At this point, we see the cyclical “participation gap” as nearly closed. While some groups of non-participators could be drawn into a very hot labor market, our baseline expectation is that the participation rate will decline by 0.25pp per year from its current level.
Average hourly earnings for all workers should rebound from a surprisingly soft February print of -0.1%, but negative calendar effects are likely to provide an offset. Overall, we expect average hourly earnings to rise at a trend-like pace of 0.2% in March. A 0.2% increase would result in a 0.1pp decline in the year-on-year rate to 2.1%, somewhat below the broader trend in wage growth captured by our wage tracker, which currently stands at 2.5% year-on-year.
* * *
Finally, courtesy of Bloomberg, this is how the market reacted to job reports in the past half year: of the last 6 employment reports, 5 most recent spurred selloffs, 1 previous triggered rally.
Feb. data released on March 4: NFP rose 242k vs 195k est.
- 10Y yield rose as much as 6.7bp to 1.900%, then retreated as U.S. equity futures failed to hold gains; closed higher by 4bp
- SPX rose 0.33%
Jan. data released on Feb. 5; NFP rose 151k vs 190k est.
- 10Y yield rose as much as 5.5bp as report was viewed strong enough to keep alive possibility of another rate hike this year; closed lower by 0.4bp at 1.836% amid selloff in U.S. equities and oil
- SPX fell 1.85%
Dec. data released on Jan. 8; NFP rose 292k vs 200k est.
- 10Y yield rose as much as 6.5bp to 2.211% and closed lower by 3bp at 2.116% amid declines in U.S. stocks and oil
- SPX fell 1.08%
Nov. data released on Dec. 4; NFP rose 211k vs 200k est.
- 10Y yield rose as much as 4.3bp to 2.356% as report set stage for Dec. 16 Fed rate increase, then erased increase and fell 4.4bp amid oil plunge
- SPX rose 2.05%
Oct. data released on Nov. 6; NFP rose 271k vs 185k est.
- 10Y yield rose as much as 11.5bp to 2.347% and closed near session high while 2Y yield touched highest since May 2010 as market priced in higher odds of Dec. rate hike
- SPX fell 0.03%
Sept. data released on Oct. 2; NFP rose 142k vs 201k est.
- 10Y yield fell as much as 13.5bp to 1.902% and closed down by 4.3bp while 5Y yield fell as much as 19.5bp as market priced in a lower chance Fed would begin rate hikes this year
- SPX rose 1.43%
The answer will be revealed in half an hour.
via Zero Hedge http://ift.tt/1UHtO2O Tyler Durden