From BofA/ML, some thoughts on Friday’s jobs report. The firm expects the headline unemployment rate to jump back to 9.2%.
January’s nonfarm payroll growth was depressed due to the weather with job growth significantly weaker relative to trend. We estimate that the weather shaved 75 to 100,000 jobs off the headline. So, we expect to see a positive payroll payback in February’s report with private nonfarm payroll employment rising 250,000. This would bring the three-month trend in private sector job creation to roughly 145,000 per month. Absent the weather distortions, we estimate the underlying rate of private sector job growth is 150,000 per month. February’s report will bring us back to trend. And, with the ongoing fiscal consolidation across state and local governments, we expect headline nonfarm employment to rise 240,000.
Even with this stronger job growth, we expect the unemployment rate to rise 0.2ppts, to 9.2%. So, what gives? The labour force participation rate has dropped in three of the last four months, and our forecast assumes a reversal to 64.4% from 64.2%. With more people returning to the labour force, the threshold to keep the unemployment rate rises. Stepping back, monthly employment growth would need to grow substantially higher than 125,000 – over 200,000 per month – to cause a steady drop in the unemployment rate. We are not expecting any major surprises in earnings and expect a modest 0.2% increase. Average weekly hours are expected to rise to 34.3 after falling to 34.2 the month prior.
The data since last month’s report show ongoing improvement in labour market conditions. The four-week trend in jobless claims, which is the number that matters, is down to a fresh-cycle low of 402,000. Meanwhile, survey data from the regional manufacturing surveys generally show an ongoing expansion in employment and hours worked. And, consumer confidence is improving. In the Conference Board’s confidence survey, the per cent of respondents noting that jobs are plentiful rose to its highlight level since May 2009.