NFP Payroll: Stickin’ with the Under

Its the first Friday of the month, and you know what that means: Nonfarm Payroll data for the prior month. With the consensus expectations at a very high 250k, why wouldn’t I once again take "the Under?"

Indeed, this month presents several additional reasons to do so, beyond my mere lack of faith in the forecasts of economists:

• Layoffs for January 2006 were 12 percent higher than the January 2005 level.  Announced layoffs were above 100,000, and came from Ford, Mattel, GM, Mitsubishi, Time Warner, Electronic Arts, BF Goodrich, and others. When you are laying off, you are not likely to be hiring;

• The Birth/Death adjustment in January tends to be quite negative, as companies dissolve after years’ and quarter’s end. This statistical adjustment has become quite significant, with the Birth/Death adjustment accounting for well over a third (~37%) of all newly created jobs since the recession ended.

• New unemployment claims were low in January, and many economists use them as a significant part of their NFP projections. But as MS Howell’s Brian Reynolds notes:

"Many economic forecasters who form the consensus rely heavily on the claims data when making their guesses (and they are nothing more than guesses) about what the payroll data may look like.

This is understandable, but often wrong. For one thing, the two series measure two different things. Friday’s payroll number attempts to measure the net number of new jobs created, while the claims data only attempts to measure half of that equation, the number of people who are filing for unemployment after being let go.

In addition, the two series are calculated entirely differently, and there can be timing differences. So, while the two often correlate in the long run, there is often no correlation between them on a month-to-month basis."   (emphasis added).


As far as the markets are concerned, I would expect a large range that would not be too disruptive after yesterday’s 2 billion plus share sell off. Anything between 150k to 250k implies modest growth. A number that’s too low supports the bear argument that the economy is already starting to cool, while a number that’s too high (300k plus) might stoke fears that the Fed’s tightening cycle has much further to go.      


Final caveat: I have long ago stated that the BLS does not monkey around with the numbers. Sure, the model is biased to the upside (just as the CPI model is biased to the downside). But thats just the politics of governing, and both parties are guilty of this.

However, consider that over the past 4 years, the Birth Death model has subtracted an average of 308k jobs each January (2002-2005 = -239k, -391k, -321, -280).

Given this very reliable pattern, I would cry foul if the B/D number was wildly off its prior trend. Its something worth watching. 

Print Friendly, PDF & Email

What's been said:

Discussions found on the web:
  1. syd falco commented on Feb 3

    I take the over. I bet the headline NFP number will be fortified with enough assumptions to push it to 245k to 265k.

    i want to see bernanke bring out the gimp.

  2. pjfny commented on Feb 3

    Actually, listeneing to CNBC and reading forecast, the consensus seems to be closer to 300,000 than 250,000 (last weeks consensus)

  3. uncle Jack commented on Feb 3

    193K, UNDER, nice call. Pay the man!

  4. vfoster commented on Feb 3

    These markets can’t figure out what’s going on.. the CNBC pundits hailed the modest growth as proof of the robust economic growth. thanks, Larry (even his optimistic tone couldn’t mask the confusion on his face). the bonds are whipping around on weak growth v higher labor costs. stocks are so confused they don’t know what to do. it appears the worst case scenario is playing out. rising labor costs keep the Fed in the game and slowing economic growth putting pressure on the consumer and thus spending. it’s been happening for a year now but the stagflation scenario is real. what’s a new Fed chairman to do? and what do you buy? volatility……

  5. Tom commented on Feb 3

    The NFP number is useless when it 1st comes out, seriously look at the revisions. The December number was off by 33% thats not even close to accurate. The November one revised again was off by over 15%. Im sure next month they will add atleast 40K to todays number.

  6. Dru Nelson commented on Feb 3

    Ok, so here is a question:

    When will these numbers actually be accurate with some higher standards to accountability.

    Seriously, when I look at the CPI and other indicators, I have a bias towards not trusting the data completely.

  7. Dru Nelson commented on Feb 3

    Ok, so here is a question:

    When will these numbers actually be accurate with some higher standards to accountability?

    Seriously, when I look at the CPI and other indicators, I have a bias towards not trusting the data completely.

  8. calmo commented on Feb 3

    The BLS posts the accuracy, just not front and center, and not too close to the revision data for the last 2 months and hardly ever with the annual baseline revisions in March.
    So Dru there you have it, without getting into the birth/death model(s) or the roughly (and I mean unaccounted) 11M illegal aliens that are working in this country doing the jobs we don’t like to do.
    You figure adding or subtracting 50,000 to last month’s tally is a step up in that staircase of higher standards when it is not known how many of those 11M have green cards?
    Seriously, it is not “a bias towards trusting data completely”. Trust your mother (Ok, only most of the time.) [She’ll be testing on this, so beware.] and sift (discard piles) everything else (maybe some of this).

  9. Dru Nelson commented on Feb 3

    It’s just odd that with all these ‘new fangled’ computers, we might actually use them to have accurate to the minute numbers on employment. Yeah, it would require some changes, but it could be done.

    If Wal*Mart can figure out how many chap-sticks are on aisle 3, you would think we could change employment in this country to take the BS out of the equation.

Posted Under