Deutsche Bank’s Joe LaVorgna is the most optimistic toward today’s jobs report of the 92 economists surveyed by Bloomberg: he predicts 225,000 nonfarm payrolls were created in July,
compared with the consensus estimate of 185,000.
On the back of a strong ISM manufacturing report, LaVorgna upgraded his forecast to 225,000 from 200,000, and knocked his projection for the unemployment rate down to 7.4% (the unemployment rate stood at 7.6% in June).
Even before Thursday’s forecast revision, though, LaVorgna’s prediction was above consensus.
Following Wednesday’s ADP employment release, which reported private payroll growth well above expectations, LaVorgna wrote:
ADP employment rose +200k in July after the prior month was revised up +10k to +198k. Since last October, when Moody’s took over from Macroeconomic Advisors, the average forecast miss from the initially reported private payroll number and the initially reported ADP figure has been just +9k. The standard deviation has been +44k. These are relatively small numbers and such ADP has done a pretty good job predicting monthly employment (at least relative to all other indicators).
Also released on Wednesday were Q2 GDP figures, including benchmark revisions to GDP data going back to 1929.
On the gap between GDP growth and employment growth, LaVorgna wrote:
Over the past three quarters, real GDP growth has averaged just +1.0% while nonfarm payroll gains have averaged 204k per month. This is the best nine month performance since April 2006 when payroll gains averaged 206k per month, and real GDP growth averaged +3.3% from Q4 2011 through Q2 2006.
Hence, the latest discrepancy between GDP and employment is puzzling to us, especially with the performance of tax receipts corroborating the job improvement. Two factors might be at play: One, productivity growth is even weaker than what we had thought. Two, real GDP growth is still understated despite the data having gone through comprehensive benchmark revisions.
“The fact that the unemployment rate has been falling — down 2.4% since its peak — despite aforementioned lackluster GDP growth strongly suggests that full unemployment (i.e., NAIRU) is higher than what many Fed officials — in particular the doves — currently believe,” said LaVorgna.
LaVorgna also highlighted the stability in recent nonfarm payroll readings in a note Thursday. He doesn’t believe it’s bound to last long, but the question is whether payrolls break to the upside, or to the downside.
“Given what we are seeing in housing and other cyclically-sensitive sectors of the economy, such as autos, the ISM and jobless claims, our best estimate is that employment is more likely to accelerate rather than decelerate,” he writes. “We will see if that happens [Friday], as we are projecting an above-consensus gain in jobs.”
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