Payrolls "Taper-On" Preview – 95 Estimates And A 7-Sigma Spread

With TrimTabs seeing real wage and salary growth at a mere 0.7% year-over-year in August, some of the more ‘robust’ expectations for tomorrow’s non-farm payroll report appear a little exuberant. However, Goldman’s 200k estimate (based on 24 labor market indicators) suggests there will be enough to provide cover (aside from the cornering via sentiment, deficits, technicals, and international resentment) for a Fed “Taper.” SocGen’s Brian Jones is top-dog at a stunning 220k expectations (2-sigma above the 180k median expectation for ‘probably the most important data point in the world’). At the other end of the scale of 95 estimates summarized below by Bloomberg, is TrimTabs’ Madeline Schnapp who sees a 5-sigma miss at a mere 79k jobs added. Goldman expects the unemployment rate to hold steady at 7.4%.

Expectations for NFP are massively widely distributed this month…

And from Bottom to Top, here are all 95 estimates…



And Goldman’s Payroll Preview:

  • We expect a 200k gain in nonfarm payrolls in August, modestly above consensus expectations of 180k and in line with the 6- and 12-month moving averages. We expect that the unemployment rate held steady at 7.4% after a two-tenths decline in July, with some risk of a further decline to 7.3%.
  • Most labor market indicators point to strong employment gains in August. Initial jobless claims have continued to fall, the employment component of the ISM non-manufacturing index posted a large gain, and household reports of job availability improved. In addition, we expect only a small sequester impact. Our forecast of 200k is also broadly in line with our labor market tracker, which summarizes 24 labor market indicators.

We expect a reasonably strong gain in nonfarm payrolls of 200k in August, above the Bloomberg consensus of 180k and in line with the 6-month moving average of 200k and the 12-month moving average of 190k. We expect that the unemployment rate probably held steady at 7.4% in August after falling two-tenths in July. However, we see some risk of a further decline to 7.3% as the July rate was 7.39% on an unrounded basis and labor force participation fell in July, ending the upward trend of the previous three months.

A number of key labor market indicators point toward a strong report:

1. Jobless claims. Initial jobless claims continued to trend downward in August. The four-week moving average leading up to the payrolls survey week (the week including the 12th of each month) declined from 347k in July to 331k in August.


2. Business surveys. The employment component of the ISM non-manufacturing index, which we have found to be the most valuable business survey for forecasting payrolls, rose sharply from 53.2 in July to 57.0 in August. In addition, the employment components of the Empire, Richmond, Kansas City, and Dallas regional Fed surveys improved, while the Philadelphia Fed survey showed a decline. The ISM manufacturing survey’s employment component declined, but only slightly.


3. Consumer confidence. Households reported that job availability improved slightly in August. Respondents to the Conference Board’s consumer confidence survey who answered that jobs are “hard to get” exceeded the number answering that jobs are “plentiful” by 21.6 percentage points, the smallest number since the start of the recession.


4. Job advertisements. The Conference Board’s measure of new job ads reported in its Help Wanted OnLine index rose in August. While the index has been quite volatile month-to-month over the last year, its four-month average has improved a touch.


5. Small sequester impact. We expect that the sequester will again have only a small impact on payrolls, reducing federal government employment by about 0-5k. Anecdotes from yesterday’s Beige Book also suggest a light impact on private sector employment, as one report of an impact in the defense sector was balanced by other reports of little to no effect.

Two other pieces of data suggest a slightly weaker employment picture:

1. Job cuts. Challenger, Gray & Christmas reported planned job cuts of 50k in August, an increase from 38k in July. The planned cuts are disproportionately concentrated in the industrial goods sector.


2. ADP. While we have found the ADP employment index to have relatively little predictive power for private non-farm payrolls, the August print of 176k was a modest decline from July’s 198k. However, the report showed employment gains in both the construction and manufacturing sectors, which have been weaker in recent months.

On balance, we think that the recent data flow is consistent with payrolls growth of about 200k in August, above July’s 162k.


The chart above shows that our labor market tracker — which aggregates information from 24 weekly and monthly labor market indicators — also points to payrolls growth in the neighborhood of 200k.


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