NFP Preview: Expecting Good or Bad Numbers?

Today is the November Employment Situation Report.

Several factors suggest something not quite as “good” as the consensus expectations of a loss of 125k NFP. This is due to several factors: 1) The White House “leak” that unemployment will increase; b) A worse than expected ADP report; iii) Ongoing terrible Household Survey Data; 4) Continued layoff announcements (albeit at a slowing pace).

However, there are a few data processing glitches that might produce a surprisingly good number — mostly due to seasonal adjustments. I will explain in a moment.

What is the Street looking for? The median estimate of 82 economists surveyed by Bloomberg News is for a Payroll drop of 125,000 workers. If this is the case, it would be the smallest drop since March 2008. It would also mean that we would be seeing an “emerging expansion begin,” and the ending of the “worst employment slump in the post-World War II era.”

The Street’s economists expect a jobless rate to stay at a 26-year high of 10.2%.

What to watch: There are several things I watch closely month after month, and November 2009 is no different. Direct your attention to the following in the actual release.

1) Hours worked

2) Wages;

3) Temp Help

These are the leading aspects of employment within the overall release (despite the overall payroll situation typically referred to as a lagging indicator, these factors usually are ahead of the overall economic cycle).

One big factor: Seasonal Adjustments. Given how awful last year’s November data was, we could see some aberrational numbers as last year’s data skews this year’s SA. That could possibly skew the numbers upward in an artificial way. Recall that December 2008 saw a whopping job loss of 965,000 — tha might skew things, depending upon the methodology for seasonal adjustments employed by BLS.

Also worth looking at: U6 — the broadest measure of under employment in the US. That could tick higher, even if the Unemployment rate stays steady at 10.2%. Also, watch the Household Survey, which normally recovers before the Establishment Survey after a recession ends. It could provide some insight into the state of the overall contraction or expansion. And of course, the absurd BLS Net Business Birth/Death Model continues to show job creation where there is none.

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The key question: How do traders react to either an upside or downside surprise?

A weaker than expected number could excite the bond ghouls, sending both equities and treasuries higher.

Too good a number, and pressure builds for the Fed to remove the easy money, accommodative policies, and ZIRP. This could cause equity traders to pare back positions. Unless they believe that profits will grow faster than easy money can be withdrawn, in which case its a moonshot.

That is the  expectations game, where you must anticipate what sentiment will dominate the monkeys pounding away at their keyboards.

Is good news bad news? Is bad news good? Or is good news actually good? To be honest, I haven’t the slightest clue . . .

BLS Employment Situation released at 8:30am EST