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Bracing for NFP Day

Once more unto the breach, dear friends, once more:

The monthly NonFarm Payroll report rolls out today, and the consensus is none too cheerful: Median estimates of 82 economists surveyed by Bloomberg for April 2008 is for a job loss of -75,000 (Dow Jones had -85,000). Estimates ranged from -150,000 to -18,000. None of the economists surveyed had a positive estimate.

Imagine that: +5,000 is a huge upside surprise.

Let's review the data points leading to NFP, starting with the positive arguments:

• According to Greg Mankiw there is no recession. Brian Wesbury agrees.

• James Pethokoukis went even further:  "Out: Recession. In: Expansion."

• Today's WSJ notes: "In the past 10 business cycles, year-over-year growth in payrolls has averaged 3% in the 12 months leading up to a recession. Twelve months before payrolls peaked this time around, job growth averaged just 1.5%. That could mean there's not a lot of payroll fat to be trimmed in this downturn. It could explain why weekly claims for unemployment benefits still haven't climbed to 400,000, the level associated with recessions." 

• ADP employment report shows addition of 10,000 jobs in April.

Hey, that's not too awful sounding -- why are the economists so negative? Let's consider a few reasons:

• ADP forecast a gain of 10,000 this month. How is that a negative? ADP has significantly understated job losses over the past 5 months. Their overestimates of private payrolls averaged +117,000.  So if ADP remains consistent, a triple digit loss is a distinct possibility.

• Jobless claims data were 380,000 (April 26th  week) -- these are levels consistent with large payroll losses. Also, continuing claims backlog surged 74,000 to new highs (3.019 million). I expect we will see 5.5% unemployment rate by Labor Day.

• BLS has been adding Business Birth/Death estimate jobs at a rate equal to or greater than 2007 rates -- a worrisome sign. 

• Recent sentiment surveys -- University of Michigan sentiment index surrounding the job market  outlook was at the worst level since January 1991. The Conference Board perceptions over the labor market deteriorated markedly in April; their ‘jobs-are-plentiful’ index printed its lowest level in nearly three years.

• Challenger layoffs were 90,015 in April -- a 68% increase from March, and up 27% Year over year, toa 19 month high.

• Manpower hiring index sank in 2Q to 14 from 17 in the first quarter and 18 a year ago.  This was the softest result in four years. Merrill Lynch's David Rosenberg points out that "a 14-ish number in the past has often coincided with recession and deepening job losses – 2001Q3, 1990Q3, 1981Q1 just to name a few."

Bottom line:  A positive number would be a huge surprise; a 6 figure loss is a small but distinct possibility . . . 

>

Sources:
Job Cuts May Not Get Too Deep
MARK GONGLOFF   
WSJ, May 2, 2008
http://online.wsj.com/article/SB120968657093061245.html 

The ADP National Employment Report
April, 2008
http://www.adpemploymentreport.com/pdf/FINAL_Report_Apr_08.pdf

Manpower Employment Outlook Survey
Q2 2008, United States
http://tinyurl.com/6nzemt

Friday, May 02, 2008 | 07:23 AM | Permalink | Comments (50) | TrackBack (0)
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Comments

Another bearish idea (more subjective than your list): The Fed did not sound as bullish as everyone was hoping in their statement this week. If they had a peek at this number....

Posted by: Coler | May 2, 2008 8:13:18 AM