preview of the u.s. employment situation for november...
TRANSCRIPT
03 May 2018
Preview of the U.S. Employment Situation for April 2018
April Preview IFRM Median Mar
Nonfarm Payrolls (k) +201 +193 +103
Private Payrolls (k) +201 +194 +102
Unemployment Rate (%) 4.0 4.0 4.1
Hourly Earnings (m/m % chg) 0.2 0.2 0.3
Workweek (hrs) 34.5 34.5 34.5
February and March brought some volatility to
the payrolls growth trend, but the average of the
two suggested no real change. With other data
appearing to normalize following the transitory
effect of last year’s hurricane, we expect a return
to a steadier trend, with payrolls up 201k this
month. For the other headline numbers, we look
for the unemployment rate to finally slip to 4.0%
(something the consensus had looked for the
prior two months), and average hourly earnings
to be up 0.2%. The workweek would be 34.5
hours for the fifth month in the past six.
The Fed is generally pleased to see inflation
getting back to its target, but earnings growth
remains well below pre-recession rates. They are
apparently willing to let it accelerate extremely
gradually, which is handy, because our forecast
has the y/y rate ticking up a mere hundredth of a
percentage point, to +2.73%. The three-month
moving average would tick down to +2.6% from
+2.7%, the third consecutive month of cooling.
Once again, jobless claims were very low by
historical standards. Initial claims during the week
including the 12th (overlapping with both the
household and establishment survey periods) rose
6k to 233k, a 4-month high, and the 4-week
moving averages in that week rose 6.5k to 231.5k,
a 3-month high. On the other hand, continued
claims for the same week dropped to 1.837 mn
from the equivalent March week’s 1.876 mn,
lowest for a survey week since December 1973.
It would take a relatively small excess of hiring
over labor force entry to send the U-3 rate
rounding down to our target, after it came in at
4.071% in March. That was just slightly above the
recent low of 4.068% (last October), and a move
lower would set a new 18-year record. So far this
year, labor force participation has grown almost
exactly in line with the household survey’s measure
of employment (average 389k and 386k
respectively), but in 2017 they averaged +72k and
+149k respectively.
03 May 2018
Payrolls Details
The softer than usual payrolls growth last
month broke down to particular weakness in just
a few sectors. On the services side, they were
principally retail trade (-4.4k) – continuing its
streak of sharp changes – and leisure and
hospitality (+5k), plus modestly under-trend
readings in professional / business services and
education / health. We think that retail numbers
lately support a moderate positive employment
increase in that sector, and expect modest
improvements in the others.
Service sector survey employment readings
make us a bit concerned, particularly the national
ISM index, which fell 3.0 to 53.6 (lowest in a
year). At least the Markit number was almost
unchanged, ticking down just two hundredths to
54.49. The Richmond Fed’s employment index
was especially weak, hitting a three-year low. The
Dallas Fed index managed to eke out its highest
since July 2014, but respondent complaints about
being unable to find labor makes us suspect that
it won’t translate into much in terms of payrolls.
Non-Manufacturing Sector Surveys
Employee Index Workweek Index
Apr Mar Apr Mar
ISM Non-Mfg 53.6 56.6
Markit PMI (prel) 54.49 54.51
Philly Fed 15.8 22.6 13.1 29.9
Richmond Fed 7 15
Dallas Fed 15.9 15.3 8.0 8.3
Goods-producing industries should have
rebounded, up just 15k in March (lowest since
last September). Construction was the cause of
last month’s softness, falling 15k (weakest in
three years), which followed February’s +65k,
(strongest in eleven years). We look for a 30k
increase this month. Manufacturing has been
pretty consistent, and we see a trend-like print of
+25k.
Survey data were a little more mixed than on
the services side. There was some disconcerting
softness in the national surveys; the ISM
employment index dropped 3.1 to 54.2, tying for
its lowest since last May, and Markit’s declined
0.62 to 54.03, worst since August. But it seems
like manufacturers have been mostly constrained
by the availability of laborers, so it’s unlikely that
these moves will translate into a change of trend.
Manufacturing Sector Surveys
Employee Index Workweek Index
Apr Mar Apr Mar
ISM Mfg 54.2 57.3
Markit PMI 54.03 54.65
New York Fed 6.0 9.4 16.9 5.9
Philadelphia Fed 27.1 25.6 21.6 12.8
Richmond Fed 12 11 8 12
Kansas City Fed 26 26 10 15
Dallas Fed 14.3 10.2 23.9 18.2
Other Anecdotes
The ADP National Employment Report was
over consensus for the ninth straight month, but
just by a hair, at +204k vs. the +200k consensus.
That’s unusually close to the BLS private payrolls
projection of +194k, but note that, in contrast to
their more usual overestimates, ADP has
underestimated the initial BLS figure in nine of the
last ten Aprils (they matched on the tenth), by an
average of 64k.
There wasn’t too much drama in the breakdown
by sector. Significant differences from the recent
trend included a 34k rise in professional services
(trailing six-month avg. of +19k) and a +14k gain
in trade/transport/utilities (trailing avg. of +27k).
They had goods-producing sector payrolls up 44k,
and service-providing payrolls up 160k, six- and
five-month lows respectively.
03 May 2018
The Conference Board's Consumer
Confidence Index improved to 128.7 from
127.0, with gains in both the present situation
index (+1.5 to 159.6) and expectations (+1.9 to
108.1). The labor market differential (share of
respondents saying jobs are plentiful minus that
saying jobs are hard to find), on the other hand,
fell 0.9 to +22.9. With a downward revision to
March (originally +25.0), that makes it the
second decline in a row from February’s +24.0, a
16.5-year high.
At least the income expectations differential
improved, up 0.3 to +16.3, highest since June
2001. The share expecting income gains ticked
down slightly, to 23.1% from 23.2%, but the
share expecting a decline fell 0.4 pp to 6.8%.
Labor market expectations also improved, the
share expecting more jobs rising 0.6 pp to 19.5%
and the share expecting fewer holding steady at
12.5%.
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What Others are Saying
According to the latest Reuters News survey,
median estimates were +193k for headline
payrolls, +194k for private payrolls, and 4.0% for
the unemployment rate. The subsequent pages
feature firms' April employment forecasts as of the
beginning of the week, laid out from highest to
lowest.
Scotia Economics (NFP +210k, U/E 4.0%)
Was the deceleration in job growth during March
(103k) a flash in the pan and possibly weather-
influenced, or was February’s 326k rise the
aberration in the context of three out of the past
four prints that have registered job growth at a
one-handled pace? At least as important is
whether average hourly wage growth hangs in at
2.7% y/y in nominal terms, or slips as base
effects counsel, or climbs somewhat further
given typical seasonal wage gains during April.
We’re going with 2.8% y/y.
TD Economics (NFP +210k, U/E 4.0%)
We expect nonfarm payrolls to bounce back,
adding 210k jobs in April. The weak 103k print in
March largely reflects a giveback from the
blockbuster February gains that were concentrated
in construction and certain services categories such
as retail trade. We expect a return back toward
trend consistent with continued strength across
survey indicators (employment surveys, consumer
confidence), with some upside as April payrolls
tend to beat expectations and outperform ADP
employment in particular. Given the still solid pace
of job gains, we expect the unemployment rate to
move lower to 4.0% assuming a stable to lower
participation rate. We expect average hourly
earnings to rise 0.2% m/m, as reference week
distortions suggest a high bar for a 0.3% or higher
print. That should leave the y/y pace steady at
2.7%, consistent with the prevailing view at the
Fed that wage growth remains only moderate.
03 May 2018
Wells Fargo (NFP +195k, U/E 4.0%)
Nonfarm payrolls rose 103k in March, below
expectations. The three-month average gain
remains at a solid 202k jobs, suggesting strong
underlying momentum. Weather played a role in
the lower March job gain; construction jobs–which
are particularly sensitive to weather, like the
storms in the Northeast–were down 15k. A
standout on the positive side was the
manufacturing sector, where the three-month
average job gain rose to 25k. As the labor market
continues to tighten, and the pool of workers on
the sidelines shrinks, monthly job gains are likely
to slow somewhat. We expect payrolls to have
increased 195,000 in April.
Average hourly earnings grew 0.3 percent in
March and are up 2.7 percent on the year. The
gradual rise in earnings over the past six months
has been helping to support income growth and
inflation, but is also increasing pressure on profit
margins. We expect another strong month for
average hourly earnings in April.
BMO Capital Mkts (NFP +190k, U/E 4.0%)
After two volatile months, nonfarm payrolls are
expected to return to a more trend-like increase
of 190k in April, just a mild step back from the
robust six-month mean of 211k. Construction
jobs should rebound after sagging due to bad
weather. The biggest challenge for the U.S.
economy now is too-few workers rather than lack
of jobs.
Barring an upturn in the participation rate, the
jobless rate is expected to decline for the first
time in seven months to a 17-year low of 4.0%.
We see it sliding further to 3.7% by year-end, a
48-year nadir (which is where new jobless claims
sit). Also look for the more comprehensive U6
measure of joblessness to probe new lows below
8%. With little slack left, the economy would
benefit from an upturn in labor force participation.
The part rate has changed little in the past four
years, as retiring baby boomers neatly offset an
upturn in prime-age (25 to 54 years) job seekers
(partly due to an upturn in disabled persons
entering the workforce).
Widespread labor shortages should lift average
hourly earnings 0.3% in the month and 2.8% in
the past year, the top end of the cycle range.
Societe Generale (NFP +190k, U/E 4.0%)
Nonfarm payrolls rose by only 103k in March, the
weakest reading since a hurricane-related rise of
just 14k in September 2017, and the prints for the
prior two months were revised down by a
combined 50k (all of it in January). Still, despite
the disappointing headline figure, payrolls jumped
by 326k in February (revised up from the initial
reading of 313k), the best result since October
2015. Moreover, the three-month average payroll
change stood at 202k and the six-month figure was
at 211k, so the underlying pace of job growth
remained well above the 100k-125k per month
that is consistent with a stable unemployment rate.
Additionally, the March reading could have been
held down somewhat by the harsh weather in the
month, when a string of snowstorms hit the East
coast. In March, the number of people not at work
due to the weather was 159k, close to the long-run
average of about 143k. However, those who
normally work full-time but had to work part-time
due to the weather numbered about 1.1 million,
well above the long-run average of 454k. To be
sure, the establishment survey counts anyone who
was paid for even one hour of work as employed,
so the weather effect could have been minimal.
Still, note that construction, a weather-sensitive
sector, shed 15k jobs in March, well below the
recent three-month average gain of 45k and the
six-month average rise of 34k, so the weather may
have played a role.
Just as the February pace of job growth
seemed to have overstated the degree of strength
in hiring, the March reading likely understated
labor demand. Indeed, we expect that job growth
advanced by 190,000 in April, close to the
underlying trend. Elsewhere in the report, the
unemployment rate, which stood at 4.1%
(4.071%) in March could have slipped to 4.0%.
That would mark the lowest rate since December
2000 (3.9%). Meanwhile, after a 0.3% rise in
March, average hourly earnings could have
03 May 2018
increased by a slightly more modest 0.2% in
April, which would leave the yoy rate steady at
2.7%.
Goldman Sachs (NFP +180k, U/E 4.0%)
We estimate nonfarm payrolls increased 180k in
April. Our forecast reflects a rebound in job
growth following a weather-influenced slowdown
in March (+103k). However, we note that labor
market fundamentals may have softened at the
margin. April snowstorms in the Midwest may also
limit the extent of the reacceleration in payroll
gains, in our view. We estimate the
unemployment rate declined by one tenth to
4.0% (from 4.07% previously), as continuing
claims have continued to fall and the surge in
labor force participation in February (+0.3pp) is
typically associated with a decline in the jobless
rate over the following three months. Finally, we
expect average hourly earnings to increase 0.2%
month over month with risks skewed to the
downside (we forecast 2.6% year over year),
reflecting somewhat unfavorable calendar effects.
UniCredit (NFP +180k, U/E 4.0%)
US nonfarm payrolls likely rose a solid 180k in
April, after fluctuating wildly in the past two
months, when payrolls rose by 326k and 103k,
respectively. We think weather-pattern and
seasonal factors were largely responsible for the
volatility. The anticipated April reading would thus
bring employment gains back to the underlying
average.
The jobless rate is likely to drop to 4.0% after
having been stable at 4.1% for six straight
months. Average employment gains are still
outpacing increases in the labor force, putting
downward pressure on the unemployment rate.
The broader U-6 underemployment rate fell back
to 8.0% in March, which is only 0.1pp above the
cyclical trough of the previous boom period
reached in December 2006.
Average hourly earnings likely rose 0.3% mom,
lifting the yoy rate to 2.8% from 2.7%. This would
leave the very gradual upward trend in labor costs
on track.
CIBC World Markets (NFP +177k, U/E 4.0%)
Even though first quarter growth this year wasn’t
as weak as in prior years, it was still a little soft
relative to the pace of employment gains. And
while convergence could come from a re-
acceleration in GDP, some slowing in the average
pace of payrolls has also been seen in prior years.
The average monthly job gain in Q1 was just over
200K, and we would expect something moderately
below that to start the second quarter. Look for job
growth in construction and manufacturing in
particular to remain weaker than earlier in the
year.
With labor force participation already having
picked up slightly and job growth set to remain
above the pace of increase in the population, the
unemployment rate could tick down to 4.0% in
April. A 0.2% rise in wage growth for the month
would leave the annual rate at 2.7%.
A slightly cooler gain in jobs than the average
seen in Q1 shouldn’t change what’s a largely
positive outlook for household incomes and
consumer spending. Should business investment
start to pick up again later in the year following the
tax cut and other incentives given to companies to
make such investments, that should re-strengthen
the trend in construction and manufacturing
employment growth.
03 May 2018
Barclays (NFP +175k, U/E 4.0%)
We expect nonfarm payrolls to rise by 175k on
the month, in line with longer-run trends in
monthly employment growth. We look for private
payrolls to rise by 170k on the month and for
government payrolls to increase by 5k. Recent
months have seen volatility in the hiring data,
with strong February hiring offset by weakness in
March. We view the weaker reading on
employment last month mainly as payback given
that other labor market indicators, including data
on initial claims, continue to point to healthy labor
market conditions.
For the U3 unemployment rate, we expect a
one-tenth decline to 4.0%. The unemployment
rate has gone five straight months without a
drop, the longest such stretch during the
recovery, and we expect it to resume its
downward trend in the coming months.
Elsewhere, we expect average hourly earnings to
rise by 0.3% m/m and 2.8% y/y and average
weekly hours to hold steady at 34.5.
See tables of forecasts on subsequent ages.
03 May 2018
Reuters Weekly Economic US Poll Release Date May 4 May 4 May 4 May 4 May 4 May 4
Period Apr Apr Apr Apr Apr Apr Unit K K % K % Hrs Prior 103 102 4.1 0.3 34.5 22 Median 193 194 4.0 0.2 34.5 20 Lowest 120 150 3.9 0.2 34.4 10 Highest 259 250 4.1 0.5 34.5 30 No. of Forecasts 102 33 100 75 37 21 INDICATOR Nonfarm Private Unemployment Average Hourly Workweek Manufacturing COMPANY Payrolls Payrolls Rate Earnings Hours Payrolls ABN Amro Cap 1 220 - 4.0 0.2 - - Action Economics 210 - - - - - ADM Inv Sec 200 - 4.0 0.2 - - Ameriprise Fin 195 195 4.0 0.3 34.5 18 Amherst Pierpont 225 220 4.0 0.2 - - ASB Bank 200 - - - - - Aurel BGC 185 - 4.0 - - - Bantleon Bank 190 - 4.0 - - - Barclays 175 170 4.0 0.3 34.5 - BayernLB 195 - 4.0 - - - BBVA 200 190 4.0 0.3 34.5 25 Berenberg 170 - 4.0 - - - Berliner Spark 180 - 4.0 0.2 - - Bk of West 185 - 4.0 0.2 34.5 17 BMO 190 - 4.0 0.3 - - BNP Paribas - - - - - - BoFAML 210 205 4.0 0.3 34.5 - Boston College 120 - 4.0 0.3 - - Briefing.com 200 195 4.0 0.3 34.5 - CA CIB 195 - 4.0 0.2 34.5 - Capital Econ 175 - 4.0 0.3 34.5 - Central 1 Credit 225 - 4.1 0.2 - - CIBC 177 - 4.0 0.2 34.5 - Citigroup 168 163 4.0 0.2 - 14 Comerica Bank 180 - 4.0 0.3 - - Commerzbank UK 180 - 4.0 0.2 - - Conference Board 180 - 4.0 - - - Continuum Econ 200 195 4.0 0.2 34.5 20 Credit Suisse 175 175 4.0 0.2 - - Dai-ichi Life 220 - 4.0 - - - Daiwa Cap Mkts 180 - 4.0 0.2 34.5 - Danske Bank 200 - 4.0 0.2 - - DBS Bank 195 - 4.0 - - - DekaBank 210 - 4.0 0.3 - - Desjardins Group 225 - 4.1 0.2 34.5 -
03 May 2018
INDICATOR Nonfarm Private Unemployment Average Hourly Workweek Manufacturing COMPANY Payrolls Payrolls Rate Earnings Hours Payrolls Deutsche Bank 185 185 4.0 0.3 34.4 - Deutsche Postbnk 180 - 4.1 - - - DNB 210 - 4.0 0.2 - - Donald Ratajczak 225 216 4.1 0.2 34.5 13 DZ Bank 180 - 4.0 - - - FAO Economics 175 165 4.1 0.2 34.5 20 Fathom 220 - 4.0 0.3 - - FCI 175 - 4.0 0.2 - - FT Advisors 184 184 4.0 0.2 34.5 22 FTN Fin Sec 225 - 4.1 0.2 - - Goldman Sachs 180 180 4.0 0.2 - - Handelsbanken 190 - 4.0 - - - High Frequency 145 - 4.0 0.2 34.5 - HSBC 185 - 4.1 0.2 - - IDEAglobal 185 180 4.0 0.2 34.5 15 IFR Markets 201 201 4.0 0.2 34.5 25 Informa Global 205 - 4.1 0.2 - - ING Fin Mkts 200 - 4.0 0.2 - - Intesa Sanpaolo 190 - 4.1 0.3 - - Investec 200 - 4.0 - - - JPMorgan 175 175 4.0 0.2 34.5 20 Julius Baer 200 - 4.0 0.4 - - Jyske Bank 180 - 4.0 0.2 - - Kern Consulting 180 - 4.1 - - - LBBW 220 - 4.0 0.3 - - Lbk Hessen 200 - 4.0 0.2 34.5 - Lloyds Bank UK 200 195 4.0 0.3 34.5 - Market 185 - 4.0 - - - Merrion 195 150 4.0 0.2 34.5 30 MFR 200 200 4.0 0.2 34.5 - Mizuho Secs 175 - 4.1 0.2 - - Moody's Analytic 200 195 4.0 0.3 34.5 - Morgan Stanley 145 - 4.0 0.2 34.4 - Mortgage Bankers 150 - 4.0 - - - NAB 205 - 4.0 0.2 - - NAR 160 - 4.0 - - - Naroff Economic 198 200 4.0 0.3 34.5 10 Natixis 175 - 4.0 0.3 - - Natl Bk Canada 160 - 4.0 - - - NatWest Markets 205 200 4.0 0.2 - - Nomura 220 210 4.0 0.3 - 15 NORD/LB 170 - 4.1 0.2 34.5 20 Oxford Econ 192 - 4.0 0.2 - 30 Pantheon 200 - 4.0 0.2 - - Peter Morici 202 197 4.0 0.2 34.5 20
03 May 2018
INDICATOR Nonfarm Private Unemployment Average Hourly Workweek Manufacturing COMPANY Payrolls Payrolls Rate Earnings Hours Payrolls PNC Finl Svc 175 170 3.9 0.3 34.5 25 Raiffeisen Intl 226 - 4.0 0.2 34.5 - Raymnd Jam Asso 185 - 4.0 0.3 34.5 - RBC 255 250 4.0 - - - S&P 200 190 4.0 0.2 34.5 10 Saxo Bank 197 - 4.0 0.2 - - Scotiabank 210 - 4.0 0.2 - - SEB 170 - 4.0 0.3 - - SMBC Nikko Sec 152 150 4.1 0.3 - - Societe Generale 190 185 4.0 0.2 34.5 15 Spartan Cap Sec 225 210 4.0 0.5 34.5 28 StanChart 185 - 4.0 0.2 - - Stifel 170 - 4.0 - - - Sydbank 180 - 4.0 0.2 - - TD 210 - 4.0 - - - UBS AG 194 194 4.0 0.3 34.5 - UCF 240 - 4.0 - - - UMB Financial 190 - 4.0 - - - Uni Georgia 259 - 4.0 - - - UniCredit 180 - 4.0 - - - Wells Fargo 195 - 4.0 - - - Westpac 180 - 4.0 - - -
Primary dealers shaded
03 May 2018
Nonfarm Payrolls Apr-18* Mar-18 Feb-18 Jan-18 Dec-17 Nov-17 Oct-17
Total 201 103 326 176 175 216 271
Private 201 102 320 188 174 217 277
Private Service-Producing 138 87 214 133 92 139 239
Goods-Producing 63 15 106 55 82 78 38
Mining 8 8 9 7 1 6 1
Construction 30 -15 65 28 42 42 17
Manufacturing 25 22 32 20 39 30 20
Durable goods 20 22 28 17 29 27 10
Nondurable goods 5 0 4 3 10 3 10
Service-Producing 138 88 220 121 93 138 233
Information 0 2 -2 -16 -4 -4 0
Financial Activities 5 2 30 3 8 9 9
Professional & Business Svcs 35 33 55 38 31 16 60
Education & Health Svcs 30 25 28 50 30 38 15
Leisure and Hospitality 25 5 23 21 31 20 110
Other Services 5 -1 6 3 5 11 17
Government 0 1 6 -12 1 -1 -6
Trade, Trans & utilities 38 21 74 33 -9 49 28
Wholesale Trade 8 11 7 7 9 10 8
Retail Trade 15 -4 47 12 -26 27 7
Trans & Warehousing 15 10 18 15 9 12 14
Utilities 0 4 2 -1 0 0 0
Unemployment Rate 4.0% 4.1% 4.1% 4.1% 4.1% 4.1% 4.1%
U-6 Underutilization Rate 8.0% 8.2% 8.2% 8.1% 8.0% 8.0%
Participation Rate 62.9% 63.0% 62.7% 62.7% 62.7% 62.7%
Hourly Earnings (y/y pct chg) 2.7% 2.7% 2.6% 2.8% 2.7% 2.5% 2.3%
Weekly Earnings (y/y pct chg) 3.2% 3.1% 2.2% 3.0% 3.0% 2.2%
Workweek (hours) 34.5 34.5 34.5 34.4 34.5 34.5 34.4
Manufacturing 40.9 41.0 40.7 40.8 40.9 40.9
Overtime 3.6 3.7 3.5 3.5 3.5 3.5
* as estimated by IFR Markets
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