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Trading  | February 1, 2018

With the January jobs report due at 830am ET on Friday morning, here is a quick recap of Wall Street expectations, via RanSquawk and Goldman:

PREVIEW: January Jobs Report

  • Non-farm Payrolls: Est. 180k (98k to 230k), Prev. 148k
  • Unemployment Rate: Est. 4.1% (4.1% to 4.2%), Prev. 4.1%
  • Average Earnings Y/Y: Est. 2.6% (2.4% to 2.7%), Prev. 2.5%
  • Average Earnings M/M: Est. 0.3% (0.1% to 0.4%), Prev. 0.3% • Average Work Week Hours: Est. 34.5hrs (34.4hrs to 34.5hrs), Prev. 34.5hrs

The US is expected to have created 180K job in December (range 98K-230K), a rebound from last month’s disappointing 148K and just higher than last year’s average of 171K (down from 186K in 2016). With labor market fundamentals seemingly solid, some banks such as Goldman believe January jobs will benefit from weather in the survey week which improved sequentially from that of December, despite the “bomb cyclone” in the first week of the month.

“Employment growth disappointed at the end of last year, but the 148k gain in nonfarm payrolls in December wasn’t far below the gradual downward trend over the last three years,” Capital Economics says. “That trend will probably continue in 2018, but with the labour force rising by only 70k per month on average over the last 12 months, it won’t prevent the unemployment rate from falling further.”

The unemployment rate is expected to remain at 4.1%, the lowest level since February 2001.

But nothing will get as much attention as the average hourly earnings print for renewed signs of wage inflation: it is expected to increase 0.3% (unch) month-over-month and 2.6% year-over-year (up from 2.5% in Dec.), as unfavorable calendar effects are partially offset by a modest expected boost from minimum wage hikes.

For now, an allegedly tightening labour market hasn’t put any significant upward pressure on average hourly earnings, and analysts at HSBC are expecting a softer showing in January on the back of pay period calendar quirks. However, core inflation has begun to tick up, and analysts are confident that wages will soon follow. In its latest statement (31/Jan), the FOMC noted that “market-based measures of inflation compensation have increased in recent months but remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.”

The latest US CB Consumer Confidence data suggests that US consumers are ambivalent with regards to income prospects over the coming months, perhaps due to uncertainty around the impact of the US tax plan, the CB said. Though it did note that consumer’s short-term view of income prospects over the coming had eased slightly, with the percentage of consumers now expecting an improvement falling by 2.3ppts to 20.4% (despite the proportion expecting a decrease also declining to 7.7% from 9%).

* * *

Arguing for a stronger report:

Weather. Despite the first week of the month’s East Coast blizzards – aka “bomb cyclone” – NOAA weather-station data suggest that nationwide snowfall in January was only slightly above seasonal norms. More importantly, snowfall was elevated during the December payroll survey week and likely weighed on job growth in several states, including New York (-1k, mom sa), Texas (flat), and Maryland (-20k). As shown in Exhibit 1, our measure of population-weighted snowfall during the survey week actually declined in January (the right axis is inverted) and would suggest a boost to job growth relative to trend of around 15-30k. While the lingering effects of the bomb cyclone suggest potential downside risk to this estimate, outside of the Northeast, most of the associated snow accumulation in major population centers had melted away by Monday of the survey week.

Exhibit 1: Nationwide Snowfall Declined from Survey Week to Survey Week,
Despite “Bomb Cyclone” In Previous Week

ADP. The payroll processing firm ADP reported a 234k increase in January private payroll employment, 49k above consensus expectations of +185k. While the report likely received a boost from the financial and economic indicators used in the ADP model, the report nonetheless suggests that the underlying pace of job growth remains firm.

Jobless claims. Initial jobless claims rebounded from a cycle low during the four weeks between the payroll reference periods (244k vs. 236k for December), but the absolute level suggests a very low pace of layoffs. Additionally, continuing claims began to decline again in mid-December, and they declined by 8k from survey week to survey week.

Job cuts. Announced layoffs reported by Challenger, Gray & Christmas pulled back 3k to 35k, its second consecutive decline. On a year-over-year basis, announced job cuts declined by 1k.

* * *

Business Surveys

The January ISM manufacturing survey recorded the rate of employment growth easing (54.2 vs 58.1 previous), though has remained in expansion for the sixteenth consecutive month. ISM said “employment expansion remains strong, but difficulties across the supply chain continue to constrain production output.” The non-manufacturing ISM is to be released after the publication of the January Employment Situation Report.

IHS Markit’s purchasing manager surveys didn’t specify the exact level of the employment sub-index, though the data compiler noted that “favourable demand conditions encouraged another robust rise in the employment numbers, although the rate of job creation eased slightly from December’s 39-month peak.”

* * *

Arguing for a weaker report:

Manufacturing-sector surveys. Manufacturing sector surveys generally declined in January, and the ISM measure employment component in particular fell 3.9 pts to 54.2. While these surveys continue to suggest a firm pace of job gains in this sector, the pace of growth may slow in Friday’s report. Manufacturing payroll employment rose 25k in December and has increased by 20k on average over the last six months.

* * *

Neutral factors:

Service-sector surveys. While service-sector employment surveys declined on net in January – led by a drop in the Philly Fed and Dallas Fed measures – the non-manufacturing employment tracker (-0.7pt to 55.1) is only a point below its 3-year high. And encouragingly, the Conference Board labor market differential – the difference between the percent of respondents saying jobs are plentiful and those saying jobs are hard to get – rose to a new 16-year high (+0.9pt to +21.2). Service sector job growth slowed to +91k in December and has increased 123k on average over the last six months.

Job availability. The Conference Board’s Help Wanted Online (HWOL) report showed an unchanged level of online job postings (mom sa) following a 5.2% rebound in December. Analysts place limited weight on this indicator, in light of research by Fed economists that suggests the HWOL ad count has been depressed by higher prices for online job ads. The Conference Board is currently reviewing its methodology accordingly.

Post-Holiday transportation layoffs. Transportation and warehousing payrolls have decelerated or declined outright in recent Januaries, reflecting payback from strong job gains ahead of the holidays. However, it appears that the BLS seasonal factors may have finally evolved to anticipate these trends (see Exhibit 3). Relatedly, the trend-like gains in transportation jobs in November and December 2017 (+11k and +2k respectively, compared to the full-year average of +6k), suggest minimal scope for payback in tomorrow’s report.

Seasonal Factors Have Evolved to Anticipate Short-Term Holiday Employment in the Transportation Industry


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