vrijdag 4 april 2014

Payrolls Preview: If Lavorgna Is Right, Citi Fears Asset Markets Will React Badly

Goldman Sachs forecasts a 200k increase in non-farm payrolls for March, in line with consensus, and believe last month's 175k print supports the ongoing positive trend (in light of the weather effect). Key employment indicators looked mixed-to-better in March, and despite the continued cold temperatures, less extreme weather conditions overall should give an additional boost to job gains this month. Citi suggests the weather could have knocked 172k off payrolls overall from Dec to Jan and are more hopeful, expecting a 240k print. Their biggest fear, a greater than 275k print (which is the high bar that Joe Lavorgna has set) could see asset markets reacting badly (on the basis of quicker Fed tightening)...


*) As Citi's Stephen Englander notes; How much weather in NFP? -172k. Our estimate of the cumulative weather effect based on the average of these models is 172k over the three affected months (Dec-Feb), with the biggest impact by far in December. Figure 1 shows the average estimate of our eight models. The models differ in estimation period, lags, whether explanatory variables are each state or the sum of all the states, among other dimensions. We don’t have enough experience with these models to be comfortable picking a ‘best’ model but there is enough consistency in their estimates to suggest that they are capturing something...


So the risk in our view lies very much on the strong side of estimates. Our economists estimate 240k, which relative to a baseline of 190k would represent a recovery of about 30% of the weather-related losses. It still looks to us as if investors are lowballing NFP tomorrow, and that the risk is to the topside (acknowledging that the tail of forecasts is a bit more skewed to the upside than to the downside).
*) Overall, we view the softer job gains seen this winter as a temporary deviation from a still-strong trend. While weather conditions remained far from normal in March, the improvement from last month should provide at least some boost. As growth accelerates later in 2014, we expect the trend rate of payrolls growth to rise to about 225,000 per month. We expect that the unemployment rate ticked down to 6.6% (vs. consensus 6.6%) in March from an unrounded 6.72% in February. We also expect average weekly hours to reverse last month's decline, which was probably weather-related. As the flip side of the rebound in hours, we expect average hourly earnings to post a softer +0.1% gain (vs. consensus +0.2%) in March after a stronger-than-usual +0.4% jump in February. While this strong print led some commentators to suspect that wage growth might be picking up, we suspect that it was largely a statistical artifact caused by the severe weather conditions in February, which probably shifted the composition of the workforce toward salaried and away from hourly workers.....