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NFP Preview - 07-April-2014

Economists’ Expectations:


It’s expected that the economy will have added around 180,000 jobs in March, which is more than enough to absorb the inflow of labor and, hence, to reduce the slack in the job market. The expected gain in payrolls would follow a 235,000 jump in February, which was significantly above the average of the past twelve months. This was partially due to a large increase in manufacturing and construction employment – the latter being positively affected by favorable weather conditions. It is expected that some of this will be reversed. Even though the jobs data will always be the most important part of this report, the market will surely pay just as much attention to developments in the unemployment rate (4.7% expected), in the participation rate (63.0% prior) and in wages (2.7% y/y expected). With so many data points to pick, I’m sure there will be something in store for both bulls and bears.

Danske Bank:

Although we believe that we will see continued progress in the labour market going forward, the March figures will probably be significantly affected by the severe weather conditions. We estimate non-farm payrolls increased by 160,000 in March, a bit below the consensus estimate of 175,000. We continue to expect the service sector to be the main driver of job creation and expect it contributed 160,000 new jobs. Manufacturing has been on a positive trend in terms of job creation, but we expect it slowed somewhat in March (also due to bad weather). Thus, we expect 15,000 new jobs were created in manufacturing. The sector most severely affected is probably construction, which could be a quite strong negative drag on overall job growth. Note that job growth of 160,000 is still higher than the structural growth in the labour force. Hence, although we would usually label it as ‘weak’, it is strong enough to tighten the labour market. We estimate that unemployment remained at 4.7% and average hourly earnings increased 0.2% m/m, implying an increase in the wage growth rate of 2.7% y/y.


After bolting out of the gate this year, nonfarm payrolls are expected to throttle back to a more subdued 170,000 gait in March, shy of the six-month trend (+194,000). The snowstorm that walloped the northeast in the survey week (sending jobless claims spiking) should bias the tally lower. But it won’t mask the sturdy trend in job creation across most industries, which is expected to continue this year. The unemployment rate is expected to slip to 4.6%, and the more inclusive U6 measure (which includes part-time workers seeking longer hours and persons outside the workforce pining for a job) will likely decline for a sixth straight month to nine-year lows. According to the latest Conference Board consumer sentiment survey, job prospects have never been better in the past 16 years. Average hourly earnings likely rose 0.3%, holding the annual rate at 2.8%, up modestly from 2.5% a year ago.


We expect a 160k gain in nonfarm payrolls following gains of 235k and 238k in the prior two months. Employment-related data over the past week has put some upside risk into our call, whereas the moderation in March is mostly due to weather effects. Unseasonably warm weather in February may have added as much as 80k to payrolls. Subsequent months should see a drag on job gains. The unemployment rate is expected to be unchanged at 4.7%, with roughly balanced risks and in line with market expectations. We are also on consensus for a 0.2% m/m increase in average hourly earnings in March, resulting in a slight dip in the year-on-year pace to 2.7% from 2.8% — still on an improving trend.


The labour market started 2017 on a particularly strong note, with a 235k gain in nonfarm payrolls in February following January's 238k rise (previously 227k). That is a material step up in the pace of job creation versus 2016 – a 187k average. The household survey also points to a strong labour market: the unemployment rate edging back down to 4.7%; and the employment to population ratio trended higher to 60%. Wages remain the one component that are not showing outright strength. However, solid gains continue. Come March, another robust jobs gain is expected, albeit back around 180k. With full employment reached, jobs growth should slow through 2017 to a pace more consistent with maintaining an unchanged unemployment rate – circa 125k.


The consensus estimate for non-farm payrolls is for a rise of 180k for March as adverse weather is expected to have held back gains relative to last month’s solid 235k rise. Despite the slowing, job generation at this pace is more than enough to put further pressure on an already tight labour market. The pace of wage growth will be important to watch as this may be a key metric shaping the rate of the Fed’s gradualism on rates.


In line with the still low level of initial jobless claims and rising confidence in the employment market, we expect total NFP to increase by 190K in March (220K for ADP).This pace along with the stabilization in the participation rate should leave the unemployment rate unchanged at 4.7%. Average hourly earnings are expected to increase by 0.3% MoM / 2.8% YoY.

Standard Chartered:

We expect another solid employment report. We forecast non-farm payrolls (NFP) at 175k (February: 235k). The unemployment rate may drop further to 4.6%. This would be another sign that the US labour market is at full employment. Wages – which are not as good as the Fed would like – will be watched closely, as the Fed scrutinises the figures to gauge the pace of rate hikes. We expect the y/y gain to remain firm at 2.8% y/y. We continue to expect the next rate hike in June.

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