In a note to clients on Thursday ahead of today’s big January jobs report, Goldman Sachs economist David Mericle gave a below-consensus outlook — +210,000 — for payroll gains in the first month of 2015.
Mericle wrote that, “
Labour market indicators were weaker on balance in January, with declines in the employment components of major business surveys pointing to a slower rate of hiring after four consecutive months in which payroll employment gains exceeded 250k.”
Additionally, Mericle outlined one reason why the report could be stronger than expected — job availability — and 6 reasons why the report could disappoint:
- Service sector surveys. The ISM nonmanufacturing employment index — which we have found to be one of the better predictors of nonfarm payrolls — fell 4.1pt to 51.6. The employment components of the New York, Richmond, and Dallas Fed service sector surveys also all declined on the month. Only the employment component of the Markit services PMI improved in January, picking up slightly from its December low. Service-sector employment gains slowed substantially to 173k in December and averaged 195k in 2014.
- Manufacturing employment indicators. The employment components of the manufacturing surveys were weaker on balance relative to December. While the employment components of the Chicago PMI and Empire surveys improved, the employment components of the ISM manufacturing, Philly Fed, Richmond Fed, Kansas City Fed, and Dallas Fed surveys softened on the month. Payroll employment growth in the manufacturing sector slowed to 17k in December and averaged 16k in 2014.
- Jobless claims. The four-week moving average of initial jobless claims leading into the payroll reference week rose 8k to 307k.
- Job cuts. According to the Challenger, Grey and Christmas report, job cuts rose about 6k on a seasonally-adjusted basis in January. The increase was more than accounted for by a jump in job cuts in the energy sector, which rose from under 3k in December to over 20k in January. As we noted recently, the sharp drop in oil prices and recent guidance from major producers point to an eventual decline in energy sector employment of as much as 60-70k by mid-year.
- ADP report. The ADP employment report disappointed consensus expectations in January with a 213k gain, 40k softer than the gain reported for December. The professional and business services category accounted for most of the slowdown, and employment growth slowed in the construction and manufacturing sectors as well. In general, initial print ADP estimates have not been strong predictors of initial print payroll gains reported by the Labour Department.
- Weather. Our method for estimating the impact on payrolls of temperature deviations from seasonal norms suggests modest downside in January, as temperatures normalized from much warmer than usual in December to only modestly warmer than usual in January. The Regional Snowfall Index registered an intermediate-level snowstorm in January, but it came too late in the month to affect the January employment report.
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