The U.S. Bureau of Labour Statistics releases the January jobs report on today at 8:30 AM ET.
The median estimate of 92 market economists polled by Bloomberg is that 180,000 workers were hired to nonfarm payrolls in January after last month’s report revealed only 74,000 hires, well below everyone’s estimates.
Meanwhile, economists predict 185,000 workers were hired to private-sector payrolls, implying a net 5,000 reduction in government employee headcount.
The big question is whether the weather effects that appeared to drag down the December number will also weigh on the January report. The consensus view seems to be that this is not likely to be the case due to the fact that temperatures were actually relatively warm over the period in which the January survey was conducted.
“The market is priced for 180,000, which implies an average gain of 127,000 over the past two months,” says Eric Green, global head of rates, FX, and commodities research at TD Securities.
“We enter the number where risks appear asymmetric. 180,000 would suggest the December number was an anomaly, but the two month trend would still be almost 80,000 off the recent pattern. Given the recent uptick in yields and a world populated with more uncertainty and volatility, that is not a number likely to push yields higher or keep risk appetites on the mend. A weaker number, however, would reinforce the fear that another false start on this recovery has reemerged.”
In its monthly National Employment Report released on Wednesday, payroll-processing firm ADP estimated 175,000 workers were hired by private-sector firms in January. The ADP report, which foreshadows the official jobs report, significantly overestimated the official December jobs number. However, this may have been due to differences in survey methodology — the upshot being that ADP’s report does not capture weather effects.
Beyond the nonfarm payrolls number, market participants will be watching the unemployment rate closely. The median estimate of market economists is that it will remain unchanged from December at 6.7%, but around 40% of those surveyed see it falling either to 6.6% or 6.5% in January.
A further drop in the unemployment rate may put pressure on the Federal Reserve to clarify its forward guidance on the likely future path of short-term interest rates, which currently dictates “that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6.5%, especially if projected inflation continues to run below the Committee’s 2% longer-run goal.”
Another item of interest in the report is the latest update on average hourly earnings.
“While everyone else focuses on the non-farm payroll increase and the unemployment rate, I am interested in wage growth and the employment rate,” says Kit Juckes, a global strategist at Société Générale, who believes the former data point “probably holds the key to Fed policy.”
“Wage growth, depending on which of the BLS series on average earnings I use (they produced a new one in 2006), is meandering sideways in a 1.5-2.3% range, says Juckes.
“With raw material prices in a downtrend, and the dollar in a gentle uptrend, I just don’t believe we will see a turn higher in U.S. inflation unless it is triggered by faster wage growth. The lack of response of wages to falling unemployment is a mystery to many economists and is a source of huge support for Fed officials who are keeping rates far too low relative to nominal GDP growth.”
Another major item of interest is annual benchmark revisions to recent jobs numbers, which will be released with tomorrow’s report.
“The January employment report will include the annual historical revisions to the establishment survey data — i.e., payrolls, hours, and earnings,” says Kevin Cummins, an economist at UBS.
“Bureau of Labour Statistics (BLS) officials have already indicated that the change in payrolls in the year ended March 2013 will be revised up. Their preliminary estimate was by 345,000, or roughly 29,000 per month. However, the rise was more than accounted for by a category of employees who had not previously been included in the payroll count. The BLS shifted 469,000 people from private household employment, which is out of the scope of the payroll survey, into health services, which is. In other words, on a like for like basis, there would have been a downward revision of payrolls of 124,000 — a negligible -10,000 per month revision to the 12 months through March 2013.”
Below are consensus estimates, courtesy of Bloomberg:
- Change in nonfarm payrolls: 180,000 expected; 74,000 previous
- Change in private payrolls: 185,000 expected; 87,000 previous
- Change in manufacturing payrolls: 10,000 expected; 9,000 previous
- Unemployment rate: 6.7% expected; 6.7% previous
- Average hourly earnings growth, month over month: 0.2% expected; 0.1% previous
- Average hourly earnings growth, year over year: 1.8% expected; 1.8% previous
- Average weekly hours worked, all employees: 34.4 expected; 34.4 previous
Finally, we leave you with some additional commentary from Wall Street economists and strategists.
GUY BERGER, RBS: “For tomorrow’s employment report, we anticipate that nonfarm payrolls probably advanced by 170,000 during January, near the 2011-2013 average of 180,000. The unemployment rate could have held steady at 6.7%, though the expiration of emergency unemployment insurance benefits (EUC) at the beginning of the month poses risks of a lower number. 1.35 million claimants lost their benefits after December 31st. If a significant fraction of those former claimants was unemployed in December (i.e. without a job but actively looking for work) but subsequently either took a job or stopped looking for work (thereby dropping out of the labour force entirely), that would exert downward pressure on January’s unemployment rate.”
DEAN MAKI, BARCLAYS: “We project a 175,000 gain in nonfarm payrolls, a 175,000 increase in private payrolls, and an unchanged unemployment rate of 6.7% in January. The payroll gain is not far from the current three-month average gain of 172,000; however, we see several cross-currents and uncertainties at work in the January report and view uncertainty concerning the forecast as unusually high. While we expect some payback after weather effects weighed on payroll growth in December, the recent rise in continuing claims suggests that the trend in payroll growth has likely softened somewhat. The January report will also incorporate updated population estimates in the household survey and the annual benchmarking of payrolls in the establishment survey. In September, the BLS estimated that the revision to March 2013 payrolls would be +345,000, but that reflected a reclassification of certain education and health care workers who previously were not included in the establishment survey. When a consistent definition of payrolls is used, the BLS estimated a downward revision of 124,000 to March 2013 payrolls.”
ERIC GREEN, TD SECURITIES: “We know that weather has had some effect on the recent data, but we are quick to admit it is very hard to tease out that affect with any precision. We can, however, make several observations. One, the weakness in the jobs data has not been equally reflected elsewhere. ISM was weak, but that was less a function of global volatility (export orders remained above its recent average) and more a function of the anticipated reduction in inventory accumulation and to some extent weather related issues. Two, the claims data suggest the December jobs number was an anomaly, and there is also nothing on the household survey to suggest otherwise. Third, we remain closer to the beginning of a cyclical rebound in construction jobs than the end, and expect the weakness in December to reverse. Finally, the January survey period was clean from weather related issues. That makes us worried that the January data could prove stronger than expected, even if we know that on an unadjusted basis the economy will shed close to 2.5 million jobs. That is a seasonal issue, it happens every January.”
VINCENT REINHART, MORGAN STANLEY: “We are making a modest downward adjustment to our nonfarm payrolls forecast to +185,000 from +215,000 after the ADP and ISM reports. Weather in January as a whole was severe, but it was actually unusually mild in the employment report survey week (the week including the 12th of the month) in January after being unusually cold in the December survey week. There were indications of a meaningful weather drag in the December employment report — most apparent in a 16,000 decline in construction, about 30,000 below trend — that we had been expecting would see a reversal in January, assuming the warm survey week would allow enough time to catch up and reverse early January disruptions during the ‘polar vortex.’ Risks look higher now of the December weather drag lingering into January, however, after the weak ISM and auto sales results that companies blamed on the bad weather (though much of the weakness in auto sales appears to have come from harsh weather late in the month a couple weeks after the mid- month employment report survey reference period). Beneath any continued weather drag, though, the solid 175,000 ADP result, on top of the significant rise to a new five-year high in the Conference Board’s jobs hard to get v. jobs plentiful question, indicate that a positive underlying trend in job growth has likely continued.”