Sunday, March 30, 2014

Merrill and Nomura on March Employment Report

by Bill McBride on 3/30/2014 11:28:00 AM

Here are some excepts from two research reports ... first, from Ethan Harris at Merrill Lynch:

We expect a solid jobs report in March with payroll growth of 230,000, reflecting a weather-induced snapback. We saw a modest recovery in job growth in February, with acceleration to 175,000 from 129,000 in January and 84,000 in December. The gain in February occurred despite still-harsh winter weather, implying pent-up activity. The survey week in February had poor conditions with snowstorms across the East coast. In contrast, the survey week in March was notably warmer, allowing for greater economic activity, particularly construction and manufacturing. ... Given the noise in the data, we advise smoothing through the recent swings and focus on a six month moving average, which is trending between 180-190K, revealing decent job growth. As the economy builds momentum, as we expect, we should see this trend move above 200K.

We look for the unemployment rate to hold steady at 6.7%. The household survey has been quite strong, with job growth averaging 445,000 over the prior four months. The series is typically mean-reverting, suggesting there is a risk of weakening in March. We also think the labor force participation rate will inch higher as confidence about labor market prospects continues to improve, assuggested by the conference board survey (the labor differential in March weakened slightly, but has been on an upward trend).

Also of interest will be average hourly earnings and the work week. Average hourly earnings surged 0.4% mom to bring the yoy rate up to 2.2%. We do not expect such strong gains to continue and look for a slowdown to 0.2% mom which still translates to a 2.3% yoy increase. The risk, however, is to the upside. We think the workweek will rebound to 34.3 after falling to 34.2 in February, which we believe was largely due to weather conditions given the spike in the percent of workers who said they couldn’t report to work due to harsh weather.
And from Nomura:
[W]e are forecasting a 190k increase in private payrolls with a 5k increase in government jobs, implying that total nonfarm payrolls will gain 195k. Furthermore, given the weaker labor market indicators within regional manufacturing surveys, we expect manufacturing employment to remain unchanged in March. Lastly, we expect the household survey to show that the unemployment rate fell 0.1pp to 6.6% in March.

Average weekly hours worked for private industries fell below trend in the past three months, most likely a result of the inclement weather which likely shortened the workweek at some businesses. However, given that the weather was better in March, we expect average weekly hours to rebound to 34.4 from 34.2 in February.
The consensus is for an increase of 206,000 non-farm payroll jobs in March, up from the 175,000 non-farm payroll jobs added in February.

The consensus is for the unemployment rate to decline to 6.6% in March.

 I'll write an employment report preview later this week after more data for March is released.

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