March 2010 NFP Preview: Random Number Generator

Today is the Employment Situation Report: The Bloomberg median estimate of economists is for a payroll gain of 184,000 workers in March.

As the chart below shows, it is the broadest range of guesses — a ~450k swing — since 2001. If the NFP data is anywhere near the high end of the range, it will be the biggest gain in three years — dating back to before the Recession began in December 2007.

There are a few caveats to the data: The weather might have been a factor. The snow storms of February (in theory) could have pushed hiring into March. The larger likely factor is Census hiring, which could distort the data for Qs 1 and 2 this year.

To reiterate our longstanding views on NFP: It is a terrible noisy, frequently revised datapoint. I believe it was Dennis Gartman who called the monthly NFP a “Random Number Generator.”Whats more important than specific print is the overall trend, which has been gradually improving over the past 10 months or so.

We can get beyond the randomness, as well as the lagging nature of the number, by looking at these elements:

1. Temporary Help: The least costly, fastest way to add to staff. No long term commitment, no HR costs, Retirement expenses, Benefits, etc.  This has been improving for the past 6 months, and historically has led employment recoveries.

2. Hours Worked: Remains near record lows. If firms begin adding hours, its usually in response to customer demand. This factor can lead a virtuous cycle of consumer spending, business capex, and more hiring — but it is still near record lows.

3. Wages: The ultimate arbiter of future economic activity. As long as firms have a greater supply of labor than there is demand, wages will stay fairly soft. Flat wages over the past decade could be reflecting a secular change. This does not bode well for future US standard of living gains.

Another consideration: As I mentioned on Bloomberg yesterday, we have been in the phase of the market where good news is good news. At a certain point in the cycle, good news becomes bad news (and bad news is good news) as it applies to the Fed.

Imagine a hot number: +500,000 jobs created. That might be bad news, as it suggests the Fed will remove the accommodation sooner rather than later. On the other hand, a soft number — anything negative to +50k — might imply that the Fed’s “extensive period of low rates” could continue further.

Employment Situation Summary and data will be released at 8:30 a.m. (EST)


Chart courtesy of Bianco Research

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