Sunday, March 29, 2015

Merrill and Nomura Forecasts for March Employment Report

by Bill McBride on 3/29/2015 11:38:00 AM

Here are some excepts from two research reports ... first from Merrill Lynch:

The recent employment reports have been exceptionally strong with job growth averaging 293,000 a month for the past six months. Although we expect a slight moderation in March with job growth of 270,000, this would still be a healthy number. Within the components, we should continue to see a shedding of jobs in the mining sector, which lost a cumulative 14,000 over the past two months. The plunge in oil prices has resulted in layoffs in oil and gas production. Elsewhere, we expect decent growth in construction jobs but a slowdown in manufacturing hiring given the recent weakness in the PMI surveys. We will also be closely looking at the trend in retail hiring as an indicator of the beginning of the spring shopping season. Overall, this will leave private payroll growth of 260,000 and public of 10,000.

Despite strong job growth, we think the unemployment rate will tick up to 5.6%. The unrounded unemployment rate in February was 5.54%, making it a “high” 5.5%. The risk is that the labor force participation rate increases, reversing the decline in February. As always, the focus will be on wages. We look for a 0.2% gain, an improvement from the 0.12% increase in February. This would leave the yoy rate at 2.0%. We think the risk, however, is that average hourly earnings surprises on the upside relative to our forecast.
From Nomura:
Job growth has been very strong recently. Incoming data have tilted negative in March, but on balance still suggest that payrolls increased at a solid pace. Regional manufacturing surveys released thus far in March have come in less optimistic, suggesting that manufacturing jobs probably grew at a slower rate. Initial and continuing jobless claims have remained low throughout the month but were higher in the BLS survey period in March compared with the same period in February.

Based on readings of these labor market indicators, we forecast a 220k increase in private payrolls, with a 5k increase in government jobs, implying that total nonfarm payrolls will gain 225k. Given the weaker regional manufacturing surveys, we expect manufacturing employment to grow by 5k, compared with 8k in February. We forecast that average hourly earnings for private employees rose by 0.3% m-o-m in March, indicative of our expectation for a gradual pickup in wage growth as a result of the tightening labor market and also representing some bounce back after the unusually weak number in February. Last, we expect the household survey to show that the unemployment rate ticked down by 0.1pp to 5.4%.
The consensus is for an increase of 247,000 non-farm payroll jobs in March, down from the 295,000 non-farm payroll jobs added in February.

The consensus is for the unemployment rate to be unchanged at 5.5% in March.

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