The jobs recovery that started in earnest in September looks like it will decelerate slightly in March, new data out of Business Insider shows.
Using a series of data sets, including regional Federal Reserve surveys and historical economist accuracy, Business Insider forecasts non farm payrolls will increase by 193,000 individuals.
That figure is slightly below consensus estimates on Wall Street, which peg the number at 205,000.
If that number holds, it will represent the seventh consecutive month the economy has added more than 100,000 jobs, and it could tip the country’s unemployment rate down 10 basis points to 8.2 per cent.
Although a majority of banks project unemployment will be unchanged in March, a growing number of economists see the headline rate edging lower.
“If unemployment declines 50,000, the rate will edge down to 8.2 per cent,” Deutsche Bank’s Chief Economist Joe LaVorgna says. “We would not be surprised to see the rate fall to 8.1 per cent, 0.1 per cent lower than the FOMC‘s 2012 central tendency forecast of 8.2 to 8.5 per cent. This is why we believe the rate could be of equal if not greater significance to the projected gain in payrolls.”
Including revisions to the January and February reports, Business Insider estimates the report will show a total gain of 230,000 positions.
To construct the estimate, Business Insider went over several key data points, including commercial and industrial loans, the seasonally adjusted annual rate of light vehicle sales, initial unemployment claims, five regional Federal Reserve employment sub-indexes, the Citi U.S. Surprise Index, and past economist accuracy when predicting NFP.
Citi Surprise Index & Economist Accuracy
The first indicator blended into the model is the Citi Surprise Index, a measure of economist accuracy. The index is a measure of how close economist predictions are to reality: the higher the number, the further behind the curve analysts are in judging the strength of the economy.
Business Insider broke up the index into pieces to look at specific economic periods and arcs, targeting moments when analysts continued to diverge from actual economic performance. Over the past seven months, economists have generally underestimated the pace of job growth.
And that continued through last month, albeit at a much lower rate.
At present, the index shows economic activity continues to positively outpace economist predictions, standing at 15.0. However that margin has deteriorated sharply from February. A series of data points released towards the end of March missed expectations, dampening predictions and the Citi index.
To better look into the cloud of data points, Business Insider limited the difference between expectations and actual nonfarm results to times when the Citi Index was within 5 points of 15.0 and -15.0. On average, economists were just two per cent below the actual result.
Photo: Eric Platt/Business Insider
Business Insider also forecast results of revisions to the January and February report. Below, output from the Citi Surprise weighted model.
Eric Platt/Business Insider
*The May and June 2008 data points were not included in the average because of skew associated with the deepening recession.
Regional Fed Activity
Second is a close look at regional employment activity as measured by five Federal Reserve Districts: New York, Philadelphia, Kansas City, Dallas, and Richmond.
Nearly across the board, regional employment remained positive. In the Eleventh Federal Reserve District, which includes of Texas, northern Louisiana and southern New Mexico, hiring trends remained substantively positive, with the main employment sub-index registering at 21.7. That was a slight decline from a month earlier.
“labour market indicators reflected higher labour demand,” the Federal Reserve Bank of Dallas said. “Strong employment growth continued in March, although the index edged down from 25.2 to 21.7. 20-nine per cent of firms reported hiring new workers, while 7 per cent reported layoffs. The hours worked index continued to suggest average workweeks lengthened.”
A regression of a new blended metric of the Fed data showed surprising correlation to the NFP report, with an r-squared of 0.748.
Photo: Eric Platt/Business Insider, Data: Regional Federal Reserves
Commercial and Industrial Loans
One of the closest correlated data points our analysis showed was Commercial and Industrial Loans, which are released weekly in the Federal Reserve’s H.8 Report.
Following the 2008 financial crisis, credit, on a monthly per cent change basis, contracted at a much greater pace than nonfarm payrolls. However, with a bump in economic activity, credit has surged so fast that the data has once again diverged.
In its most recent report, loans were more than 12 per cent higher than where they stood one year ago.
The weighting for C&I loans was reduced for the second month to represent the departure from the parallel movements.
Nonetheless, the directional movement of the lending indicates that businesses are investing and hiring again (good news for the NFP number). The chart below shows total payrolls to changes in C&I loans. However, calculations feeding into the BI model were based on changes in both — not the overall level — to compare flows to flows.
Photo: Eric Platt/Business Insider, Data: Federal Reserve
Light Vehicle Sales
Auto sales in March perked up to some of their highest levels in years, at an annual pace of 14.3 million. Although that was below the 15.03 million SAAR logged in February, the underlying number of units for which the seasonally adjusted figure is based surged to 1.4 million.
In recent months both nonfarm payrolls and vehicle sales have moved in tandem, and the adjusted sales rate of automobiles appears to use the nonfarm payroll reading as a floor (as charted below).
Photo: Eric Platt/Business Insider, Data: Federal Reserve/Bureau of Economic Analysis
Based on our blend of the above, which weighs the data by correlation and recent predictive power, the data points to a lower gain in March: a nonfarm payroll expansion of 230,000 jobs, when including revisions, and 193,000 jobs without.
The projection is below the consensus Street estimate, which calls for a 205,000 new jobs. If the model is accurate, this will continue the strong NFP readings over the past six months.