How Today’s Payroll Report Could Heighten QE3 Talk

The Wall Street Journal – Job Growth Slowed in April, Report Says
A gauge of private-sector hiring showed weakness in April, the latest data point to suggest the labor market has cooled a bit from its healthy early-year pace. The U.S. added 119,000 nonfarm private-sector jobs last month, the slowest pace since September, according to a report Wednesday by payroll giant Automatic Data Processing Inc. and forecasting firm Macroeconomic Advisers. The report foreshadows the government’s broader monthly jobs report, coming Friday, but isn’t as closely followed because the ADP figures are calculated differently and have a mixed re


On April 6 the BLS reported March payrolls came in at a disappointing 120,000 jobs.  Yesterday’s ADP report, as noted above, was also disappointing.

Tomorrow’s release of the April payroll report is expected to show a rise of just 160,000 jobs.  Embedded in this already weak forecast are the 21 forecasts revised this week which average just 152,000 jobs.  The closer we get to the payroll report, the weaker the forecasts become.

Given all the above, there is a reasonable chance that the March (after revision) and April (released tomorrow) reports could both show less than 150,000 jobs were created.  Why is this important?  Consider the following passage from Bernanke’s press conference last week:

Q:  What kind of job growth on average is consistent with the  unemployment projections that you’ve made?

MR. BERNANKE:  Well, we need something — estimates differ.  We  need fewer jobs monthly to keep unemployment consistent or stable than  in the past; I suppose more like a hundred thousand a month for  stability.  I don’t have an exact answer, but broadly speaking, 150(,000) to 200,000 jobs or so.  But that’s a very rough estimate. And of course, individual participants may have different views.  Again, that’s not a forecast.  I’ve made a hypothesis which would  imply slower improvement and unemployment.


The chart above is the FOMC’s forecast for unemployment between now and 2014.  The light blue cone shows the range of forecasts among the FOMC members.  The dark blue cone shows the “central tendency” (which excludes the three highest and lowest forecasts) of all Federal Reserve governors.  In all instances the FOMC expects unemployment to continue declining over the next few years.

In answering the question above the chart, Bernanke said that 150,000 to 200,000 jobs a month is needed to keep the unemployment rate either steady or falling.  March’s job growth was below this threshold and the April forecasts expect job growth on the bottom end of this threshold.

So what happens if the March payroll report is revised to show fewer than 150,000 jobs were created and tomorrow’s April report also comes in below this mark?  As Bernanke said in his press conference last week:

MR. BERNANKE:  So in particular, we’ll continue to assess — you know, looking  at the economic outlook, looking at the risks — whether or not  unemployment is making sufficient progress towards this longer-run  normal level and whether inflation is remaining close to target.  And  if appropriate, and depending also on assessment of the costs and  risks of additional policy actions, we remain entirely prepared to  take additional balancing actions if necessary to achieve our  objectives.

Let’s bluntly translate what Bernanke said.  If job growth slows enough to threaten a rise in the unemployment rate, the printing presses in the basement of the Federal Reserve (QE) will be cranked up again.  And, according to Bernanke himself, anything less than 150,000 jobs a month would be reason for concern.

That said, two payrolls reports under 150,000 are not the magic trigger for QE3.  But, they could very well be the start of a data trend that would, in Bernanke’s view, move the Federal Reserve closer to “additional actions.”  We await tomorrow’s statistics.

Source: Bianco Research

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