Wednesday, February 04, 2015

Preview for January Employment Report: Taking the Under

by Bill McBride on 2/04/2015 01:35:00 PM

Month after month I've taken the "over"  for the employment report ("over" the consensus), and that has been correct most months. However, for January, I'll take the "under" ... however I think there is a good chance that employment will be up 3 million year-over-year (it would take 192 thousand jobs added including revisions).

Friday at 8:30 AM ET, the BLS will release the employment report for January. The consensus, according to Bloomberg, is for an increase of 230,000 non-farm payroll jobs in January (with a range of estimates between 215,000 and 268,000), and for the unemployment rate to be unchanged at 5.6%.

The BLS reported 252,000 jobs added in December.

Here is a summary of recent data:

• The ADP employment report showed an increase of 213,000 private sector payroll jobs in January. This was below expectations of 220,000 private sector payroll jobs added. The ADP report hasn't been very useful in predicting the BLS report for any one month, but in general, this suggests employment growth slightly below expectations.

• The ISM manufacturing employment index decreased in January to 54.1%. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll jobs were unchanged in January. The ADP report indicated a 14,000 increase for manufacturing jobs in January.

The ISM non-manufacturing employment index decreased in January to 51.6%. A historical correlation between the ISM non-manufacturing employment index and the BLS employment report for non-manufacturing, suggests that private sector BLS non-manufacturing payroll jobs increased about 115,000 in January.

Combined, the ISM indexes suggests employment gains of 115,000.  This suggests growth below expectations.

Initial weekly unemployment claims averaged close to 298,000 in January, up from 291,000 in December. For the BLS reference week (includes the 12th of the month), initial claims were at 308,000; this was up from 289,000 during the reference week in December.

Generally this suggests a few more layoffs, seasonally adjusted, in January compared to the previous four months (employment gains averaged 284,000 per month for the previous four months).

• The final January University of Michigan consumer sentiment index increased to 98.1 from the December reading of 93.6. This was the highest level in over ten years. Sentiment is frequently coincident with changes in the labor market, but this increase is probably mostly due to sharply lower gasoline prices.

• On small business hiring: The small business index from Intuit showed a 20,000 increase in small business employment in January, down from 30,000 added in November and December.

• Trim Tabs reported that the U.S. economy added between 190,000 and 220,000 jobs in January. This was down from their 210,000 to 240,000 range last month (that was low but close). "TrimTabs’ employment estimates are based on analysis of daily income tax deposits to the U.S. Treasury from the paychecks of the 141 million U.S. workers subject to withholding"  December and January are challenging for TrimTabs due to year end bonuses - so they provided a range again this month.

• Conclusion: There is always some randomness to the employment report, but most indicators suggest fewer jobs added in January compared to the previous several months.  The consensus forecast reflects some slowdown in employment growth, but I'll take the under this month (below 230,000).

Special Note: In addition to the normal revisions, the annual benchmark revision will be released with the January report. The preliminary estimate was an additional 7,000 jobs as of March 2014 (not a large revision).

Also, the new population controls will be used in the Current Population Survey (CPS) estimation process. The BLS notes that the "household survey data for January 2015 will not be directly comparable with data for December 2014 or earlier periods".