Calculated Risk has a nice little wrap and forecast for Friday’s US jobs report which includes last night’s data:
• The ADP employment report showed an increase of 175,000 private sector payroll jobs in January. This was close to expectations of 170,000 private sector payroll jobs added. The ADP report hasn’t been very useful in predicting the BLS report for any one month. But in general, this suggests employment growth close to expectations.
• The ISM manufacturing employment index decreased in January to 52.3%, from 55.8% in December. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll jobs decreased about 7,000 in January. The ADP report indicated a 12,000 decrease for manufacturing jobs in January
The ISM non-manufacturing employment index increased in January to 56.4% from 55.6% in December. A historical correlation between the ISM non-manufacturing index and the BLS employment report for non-manufacturing, suggests that private sector BLS reported payroll jobs for non-manufacturing increased by about 243,000 in January.
Taken together, these surveys suggest around 236,000 jobs added in January – above the consensus forecast.
• Initial weekly unemployment claims averaged close to 333,000 in January. This was down from an average of 359,000 in December. For the BLS reference week (includes the 12th of the month), initial claims were at 329,000; this was down sharply from 380,000 during the reference week in December.
This suggests fewer layoffs, and possibly more net payroll jobs added than the consensus forecast.
• The final January Reuters / University of Michigan consumer sentiment index decreased to 81.2 from the December reading of 82.5. This is frequently coincident with changes in the labor market, but there are other factors too.
• The small business index from Intuit showed a 10,000 increase in small business employment in January. This is still pretty low.
• Conclusion: As usual the data was mixed. The ADP report was lower in January compared to December, the Intuit small business index showed sluggish hiring, and consumer sentiment decreased slightly in January.
However weekly claims for the reference week were down sharply, and the ISM surveys suggest a larger increase in payrolls.
There is always some randomness to the employment report, but my guess is the report will be over the consensus forecast of 181,000 nonfarm payrolls jobs added in January. Note: I took the under in December, took the consensus in November (close), and over in October, so I’m probably due to be wrong!!
Actually it’s the last point that matters most. Labour market reports are more random that other indicators so betting on them at all is unwise.
But let’s assume the report is strong and ask whether that’s the circuit breaker that markets need. Possibly for a relief rally but my answer is “no” beyond the very short term because there is enough wider evidence of a slowing US (and China) economy to reignite the taper tantrum.
If the report is weak, markets will blame the weather, but it will still reinforce the need to slow taper. However, with the Fed still early in its tightening it will be unable to do so. Indeed if new FOMC voting member Charles Plosser is a guide, there’ll be no slowing at all, from last night:
“My preference is to scale back our purchase program at a faster pace to reflect the strengthening economy,” he said today in a speech in Rochester, New York. “We must begin to back away from increasing the degree of policy accommodation in a manner commensurate with an improving economy,” said Plosser, who has opposed the bond purchases by the Fed.
A good print won’t help markets either. Looks like a lose-lose to me.
