Yeah, its that god-damned time of the month again.
The consensus for NFP is for 115,000, with a range of 50,000 to 147,000, according to Barron’s/Dow Jones.
A few statistical oddities make today’s number, which has been touted in the media as all important, somewhat more unpredictable than usual:
• Teaching jobs (education, non-private) have been declining over the summer. That is an aberration which should get fixed this month. In today’s WSJ, Justin Lahart notes:
"One wild card is the way the government counts teacher jobs. The August
report registered a loss of 32,000 public-school teaching jobs, which
came on top of 50,000 lost teaching jobs in July. "While it is possible
that some school districts around the country have downsized this year,
we think it is more likely a number of districts have simply changed
the timing of the start of their school year," economists at Lehman
Brothers noted ahead of the report."
• Weak ADP Report:
"Nonfarm private employment grew 58,000 from August to September of 2007 on a seasonally adjusted basis, according to the ADP National Employment ReportTM. The estimated change in employment from July to August was revised down by 11,000 to 27,000.
This month’s ADP National Employment Report was the third consecutive weak reading and confirms the recent deceleration of employment.
In September, employment in the service-providing sector of the economy grew a moderate 97,000, while employment in the goods-producing sector declined 39,000. This marks the tenth consecutive monthly decline in the goods-producing sector. Employment in the manufacturing sector declined 22,000."
• Birth/Death adjustment has been modest in past Septembers. Stephanie Pomboy of MacroMavens notes:
"Loath as I am to bet against the BLS’s ability to manufacture jobs, the birth/death factor, which has single-handedly accounted for 1.1m (or 70%) of the 1.5m jobs ‘created’ over the past year, is lower in Sept. than any other month of the year after January.
Last year, the Sep birth/death contribution was 13k, versus an average monthly contribution of 93k jobs. Given the uptick on Continuing Claims, Jobs Hard to Get (in the Consumer Confidence report) and the record low notched in Help-Wanted Ads, the potential for a negative surprise seems high…
I agree with Stephanie that a downside surprise is, well, not much of a surprise (recall our years long success with betting the Under).
• Revisions: This is another wild card that may surprise. We know the BLS has been over-stating small business job growth, most especially in construction. However, as BLS skeptic Bill King has observed "Last month, the BLS attempted to remove some of these jobs." Perhaps they have gotten religion over the absurdity of the B/D adjustments.
On a related note (and for the record), I am not in the conspiracy camp; I beleive the statisticians at the Labor Department do the best job they can. They release all of the data they have on NFP, Inflation, etc. — warts, and all. Whatever biases that are inherent in the BLS output comes from the very senior people who are in charge of tweaking the master models.
Regardless, the revisions might surprise.
How will the markets react? Well, a strong number reduces the likelihood of a Fed cut . . .. but it also lowers the likelihood of a recession.
A poor number might generate a knee-jerk short term rally, increase the Fed Fund Futures markets odds of further rate cuts, but also increase the odds of a recession. And no matter you might have heard on TV, recessions ain’t good for profits or stock prices.
As we have noted in the past, its only one monthly data point, the overall trend is what matters most . . .
UPDATE OCTOBER 5, 8:43am
September non farm payrolls rose by by 110k, ever so slightly under consensus. There were very large upward revisions, of which ALMOST ALL were in Govt jobs. This is the Teacher/Education revisions we discussed above.
However, private sector jobs were revised upwards a grand total of 5,000. ADP seemed to get the Private Sector job number pretty dead on (73k)
The most interesting news in the report was the Average Hourly Earnings — they rose 0.4% (0.1% more than expected) — and were up a substantial 4.1% y/o/y. This may improve the outlook for consumer spending, but also reduces Fed Cut possibilities.
The US Dollar is rallying on the news, implying the odds of another Fed Cut are lowering. Rate cut odds for a 25 bps cut at the October meeting have fallen to 52% (from 72% as of yesterday). The odds of a total of 50 bps by yr end is down to 16%, from 40% yesterday.
For the year ending March 2007, the Benchmark revisions were down by 297k. As Miller Tabak’s Peter Bookvaar notes, "there were 297k less job growth than initially thought, thus making Govt data tough to believe in month to month. The Bottom line: ex out the noise from Govt jobs over the past few months and private sector job gains are averaging just 74k over the past 3 months."
Weak Economy Doesn’t Always Spell Job Losses
WSJ, October 5, 2007
Analysis of September 2007 Report
ADP, Wednesday, October 3, 2007, 8:15 am EDT