Will NFP Breach 100k ?

The Bureau of Labor Statistics releases Nonfarm Payrolls this morning at 8:30. Consensus expectations are for Payrolls to drop by ~75,000, the eighth consecutive monthly decline. Barron’s pegs the range of forecast on Wall Street from -150,000 to -60,000, with no economist forecasting a job gain.

Consensus for the Unemployment Rate is 5.8%, with a range from 5.5% to 5.9%, according to Bloomberg. ADP National Employment Report forecast that private employment decreased 33,000.

Two very interesting data points to note: The trend in Payrolls is
now negative, not just for 8 consecutive months, but today’s release is
likely to be negative year over year. Secondly, aggregate hours worked has entered the red side of the year over year ledger two months ago.

Why are these data points important? Employment is a lagging indicator, and once it flips negative year over year, it tends to get worse, not better, over the ensuing year. Merrill Lynch’s David Rosenberg observes:   

Once the YoY trend in payrolls goes negative, it does not bounce back – it is the hallmark for a new trend that lasts more than a year; and at the trough reaches -1.5% to -2%.  So, we have already seen 463,000 jobs cut so far this year, and the historical record would tell you that there is probably between another 1.5-2.0 million to go before the job market backdrop stabilizes.

One last data point worth noting: As the chart below shows, when employment data goes negative on a year over year basis, we get a recession 100% of the time:


Non Farm Payrolls, Year over Year changes (1935-2008)

chart courtesy of Merrill Lynch


And as that chart shows,we are still in the early stages of any employment downturn, as employment is a lagging indicator. Hence, hopes that the non-recession is all but over are most likely very premature.

Will today be the month when NFP crosses the 6 figure line? It certainly can be argued that but for the Birth Death adjustment, it already has. Given that layoffs are now at the highest levels since 2002, a 100k number is very possible. But any negative number will tip us into the red Y/Y — with all the negatives associated with that. 


Excess capacity being built up in the labor market
David Rosenberg   
Merrill Lynch, 04 September 2008

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  1. Vermont Trader commented on Sep 5

    We also have MBA mortgage remitance data at 10 today…

    Next week is fairly quiet but the week of the 15th you get FOMC and GS, MS, and LEH. And options expiration…

    If we get a sub 100k print on payrolls do you think we start hearing Fed cut chatter?

  2. Sheryl King commented on Sep 5

    Challenger layoff announcements were down 14% in August compared to July but remain up 11.7% compared to last year and the running total so far this year is 668k, up 30% at this time last year. The numbers are another signal that the labor market remains soft and more upward pressure on the unemployment rate is to be expected. The auto sector led with 17k layoffs followed by government at 12k, both sectors that have been hard hit by the weaker consumer, with the latter now seeing double the pace of layoffs it experienced last year. We expect outright declines in state and local government employment starting with the upcoming nonfarm payroll report, as this sector retrenches given their deteriorating fiscal situation. Total hiring announcements were down 8k compared to July but year to
    date are down 75% compared to last year.

  3. Mike in NOLa commented on Sep 5

    Will anyone here be surprised if there is some “adjustment” applied to make them look good?

    I thought not.

  4. Winston Munn commented on Sep 5

    It will surely be enlightening to see the job creation that corresponds to the robust +3.3% GDP.

  5. Winston Munn commented on Sep 5

    Just a suggestion: birth/death adjustment=The Lazarus Factor?

  6. Stuart commented on Sep 5

    OMG if we see adds to construction and financial positions …. We will need to bring in psychologists and psychiatrists to examine all employees of the BLS. I think today we solidify insight into how political this organization is.

  7. waiting commented on Sep 5

    ***Just a suggestion: birth/death adjustment=The Lazarus Factor?***

    the cynical partisan in me is thinking that W’s number crunchers were straining as much as possible to spin the B/D adjustment as positive as possible.

    we’ll see soon.

  8. Mike in NOLa commented on Sep 5

    OK, Barry, they say -84k. What is it really?

  9. Ben commented on Sep 5

    Will NFP Breach 100k ? Nop! Of course not! We’re still in the BULL-MARKET!!! lol…….

  10. Stuart commented on Sep 5

    August will breach 100K when it’s adjusted next month. June adjusted to -100K from -51K….. how the hell can you be off almost 100%!!!

    08:32 ECONX June nonfarm number revised to -100K from -51K

  11. Westside commented on Sep 5

    Its also interesting to note from the graph that every time the curve goes negative there is a change in party administration in the white house.

  12. Westside commented on Sep 5

    Its also interesting to note from the graph that every time the curve goes negative there is a change in party administration in the white house.

  13. jimcos42 commented on Sep 5

    Very good. So whenever that puppy gets below zero, it’s time to generally be long.

  14. Phil Izzo commented on Sep 5

    Economists React: Jobs Report ‘Screams Recession’

    Economists and others weigh in on the jump in the unemployment rate to 6.1% and the 84,000 job losses reported in August.

    Unlike the first big jump in unemployment in May, the problem is not school-leavers; the unemployment rate for 16-19 year-olds fell in August, while the rate for everyone else rose to 5.8% from 5.3%. During the 01 recession the peak rate for 20+ people was only 5.0%; it then rose to a peak of 6.0% in mid-03 after the Iraq war but that rate will clearly be eclipsed very soon… In short, grim.
    –Ian Shepherdson, High Frequency Economics

    So far this year, 605,000 jobs have been lost. The economy has clearly slipped into a jobs recession because the housing meltdown and credit market turmoil has spread to the broader economy. Persistent job losses will eventually pull the overall economy into recession… Over the past year, the number of unemployed people has increased by more than 2.24 million and the unemployment rate has increased by 1.4 percentage point. In the post World War II period, every time the unemployment rate has jumped by a full percentage point or more in the course of a year, the economy has been in recession.
    –Stephen A. Wood, Insight Economics

    The improvement in GDP growth to 3.3% in the second quarter was just a head-fake. We expect growth to slow in the current quarter to just over 1% and then turn negative in the fourth quarter. For the Fed, the report confirms that the notion of a rate hike to combat inflation is fanciful — the question now is rather whether the Fed might need to cut again.
    –Nigel Gault, Global Insight

    The recent sharp rise in the unemployment rate (+1.3 percentage points in six months) has been accompanied by an increase in the labor-force participation rate, where a declining participation rate is the rule when the unemployment rate is easing. That is, an atypically strong rate of new labor force entrants accounts for part of the rise in unemployment. Put differently, the rising participation rate helps to explain why the household survey employment trend has not been as weak as has typically accompanied such a rapid rise in the unemployment rate: employment has declined at a 0.7% annual rate over the last six months, compared to a 1.2% decline in late-2001 and a 1.1% drop in late 1990.
    –Alan Levenson, T. Rowe Price

    This is a very weak jobs report that screams recession. The rise in the unemployment rate points to a very weak third quarter for growth. The average unemployment rate for July and August is 5.9% and up 0.6% points from its second-quarter average. On average, a rise in unemployment of 0.4% points would take one year of GDP growing 1% point below its potential and the unemployment rate has risen 1.0% point over the last two quarters!
    –RDQ Economics

    Overall total private employment declined -101,000 for the month. The only major areas of the economy to see net growth in August was the education and health sector which hired 55,000 workers and the government expanded its payrolls by 17,000… The decline in the data was broad-based and implied that the toll extracted from the combination of the housing crises and the credit crunch has now reached the point that it will spill over to the greater economy.
    –Joseph Brusuelas, Merk Investments

    This is the second time in the past four months that the unemployment rate has risen 0.4 percentage points or more in as ingle month. Such swings are generally rare. In this case, we suspect that the recent moves at least partially represent a catch-up. The payroll employment data stated to show some noticeable labor market deterioration beginning in early 2007. However, the unemployment rate barely budged until March of 2008. Also, it’s worth noting that the household survey used to compile the unemployment rate is based on a very small sample — only .06% of all households. In contrast, the establishment survey used to construct the payroll employment data is based on a tally that covers more than 50% of all jobs.
    –David Greenlaw, Morgan Stanley

    While inflation worriers may be alarmed, the second straight 0.4% increase in average hourly earnings is more likely another manifestation of a weaker job market. In the early stages of a downturn, businesses typically cut first the most marginal — and consequently, lowest paying jobs. With fewer low-paid workers holding down the average, hourly earnings increase. –
    David Resler, Nomura Securities

  15. Sogol commented on Sep 19

    Hi Barry,

    Wanted to let you know, you can access similar graphs (just like the one you used in this post) on US unemployment rate, Non Farm Payroll and Unemployment Insurance Claim at FXEconoStats (http://www.fxeconostats.com). Check them out!

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