Thursday, March 05, 2015

Goldman February Payrolls Preview

by Bill McBride on 3/05/2015 12:10:00 PM

Yesterday I posted a employment preview for February. Here are some excerpts from Goldman Sachs economist David Mericle:

We expect nonfarm payroll job growth of 220k in February, below the consensus forecast of 235k. Labor market indicators were mixed in February, and we expect that the effect of four major snowstorms in the month leading into the February survey week will also weigh on payroll growth. We expect a one-tenth decline in the unemployment rate to 5.6%, reversing the increase seen last month. On average hourly earnings, our baseline expectation is for a 0.2% increase, but we see some upside risk from possible statistical distortions related to the severe snowstorms.
emphasis added

Weekly Initial Unemployment Claims increased to 320,000

by Bill McBride on 3/05/2015 08:34:00 AM

The DOL reported:

In the week ending February 28, the advance figure for seasonally adjusted initial claims was 320,000, an increase of 7,000 from the previous week's unrevised level of 313,000. The 4-week moving average was 304,750, an increase of 10,250 from the previous week's unrevised average of 294,500.

There were no special factors impacting this week's initial claims.
The previous week was unrevised.

The following graph shows the 4-week moving average of weekly claims since January 2000.

Click on graph for larger image.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 304,750.

This was above the consensus forecast of 300,000, however the low level of the 4-week average suggests few layoffs.

Wednesday, March 04, 2015

Thursday: Unemployment Claims, Stress Test Results

by Bill McBride on 3/04/2015 07:01:00 PM

From Greg Ip at the WSJ: Janet Yellen, Forecasting Ace

Her forecasts as a Fed official have been strikingly accurate, as the release of 2009 transcripts to the Fed’s deliberations make clear. If she worked on Wall Street, she’d be a “hot hand.” This does not mean as chairwoman she is necessarily right; but it does suggest her forecasts deserve the benefit of the doubt.
A Wall Street Journal study of her public comments concluded that she consistently hit the mark more often from 2009 to 2012 than other members of the Federal Open Market Committee.

Transcripts of FOMC meetings in 2009, released Wednesday, reinforce this point. Ms Yellen is repeatedly more gloomy about the outlook, less worried about inflation, and more in favor of forceful monetary stimulus than her colleagues.

Her foresight on inflation is especially noteworthy. Discussing its outlook in January, 2009, she said: “We could see a prolonged period in which inflation falls well below the level consistent with our dual goals of price stability and maximum sustainable employment.” That, of course, is what has happened: inflation has consistently run below the Fed’s 2% target.
Yellen has no crystal ball - she just paid close attention to the data and drew the correct conclusions.  This is one reason I argued for Yellen as Fed Chair.

• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 300 thousand from 313 thousand.

• At 10:00 AM, Manufacturers' Shipments, Inventories and Orders (Factory Orders) for January. The consensus is for no change in January orders.

• At 4:30 PM, Dodd-Frank Act Stress Test Results

Preview for February Employment Report

by Bill McBride on 3/04/2015 03:28:00 PM

Friday at 8:30 AM ET, the BLS will release the employment report for February. The consensus, according to Bloomberg, is for an increase of 230,000 non-farm payroll jobs in February (with a range of estimates between 200,000 and 252,000), and for the unemployment rate to decline to 5.6%.

The BLS reported 257,000 jobs added in January.

Here is a summary of recent data:

• The ADP employment report showed an increase of 212,000 private sector payroll jobs in February. 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 February to 51.4%. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll jobs declined by 10,000 in February. The ADP report indicated a 3,000 increase for manufacturing jobs in February.

The ISM non-manufacturing employment index decreased in January to 56.4%. 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 245,000 in February.

Combined, the ISM indexes suggests employment gains of 235,000.  This suggests growth close to expectations.

Initial weekly unemployment claims averaged close to 295,000 in January, down from 298,000 in January. For the BLS reference week (includes the 12th of the month), initial claims were at 282,000; this was down from 308,000 during the reference week in January.

Generally this suggests slightly fewer layoffs, seasonally adjusted, in February compared to January.

• The final February University of Michigan consumer sentiment index decreased to 95.4 from the January reading of 98.1.  Sentiment is frequently coincident with changes in the labor market, but this decrease is probably mostly due to an increase in gasoline prices in February.

• Trim Tabs reported that the U.S. economy added between 215,000 and 245,000 jobs in February. This was up from their 190,000 to 220,000 range last month. "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".

• Conclusion: There is always some randomness to the employment report, but most indicators suggest an employment number close to the consensus.

Note: Last February, the economy added 188,000 jobs according to the BLS, so anything above 188,000 (including revisions) will increase the year-over-year change (already highest since the '90s).

Fed's Beige Book: Economic Activity Expanded "across most regions", Oil "declined"

by Bill McBride on 3/04/2015 02:00:00 PM

Fed's Beige Book "Prepared at the Federal Reserve Bank of St. Louis and based on information collected on or before February 23, 2015. "

Reports from the twelve Federal Reserve Districts indicate that economic activity continued to expand across most regions and sectors from early January through mid-February. Six Districts noted that the local economy expanded at a moderate pace since the prior reporting period. Activity rose modestly in Philadelphia and Cleveland, while it increased slightly in Kansas City. Dallas noted a similar pace of growth as in the previous period, while Richmond reported that activity slowed from the modest pace seen in the prior period. Boston noted that business contacts were fairly upbeat this period, notwithstanding the severe weather....

Oil and natural gas drilling declined in the Cleveland, Minneapolis, Kansas City, and Dallas Districts. In contrast, the Richmond District reported that natural gas production was unchanged. The number of drilling rigs for oil and natural gas declined sharply in the Cleveland, Minneapolis, and Kansas City Districts. Oil and gas producers in the Cleveland, Kansas City, and Dallas Districts anticipate cuts in capital expenditures during 2015. Coal production was unchanged in both the Cleveland and Richmond Districts, while it increased modestly in the St. Louis District. Both the Cleveland and Richmond Districts reported lower coal prices.
And on real estate:
Residential real estate conditions were mixed across the Districts. Home sales and prices increased in most Districts; construction activity was mixed, with some Districts reporting disruptions due to severe weather. Residential sales increased in Boston, Philadelphia, Richmond, St. Louis, Dallas, and San Francisco. Sales fell in Cleveland and Kansas City. Contacts in New York, Philadelphia, and Cleveland partially attributed lower construction to inclement weather conditions. Contacts in Boston noted low levels of inventory due, in part, to inclement weather. Reports noted that low levels of inventory and lack of desirable lots continue to slow the market: Contacts in Boston, Cleveland, Kansas City, and San Francisco cited a lack of available inventory, while contacts in Cleveland and Richmond noted a lack of available lots. Single-family building permits increased in St. Louis and San Francisco. Contacts in Cleveland, Atlanta, Kansas City, and Minneapolis reported flat to declining real estate construction.

Commercial real estate market conditions were stable or improving in most Districts. Commercial vacancy rates declined in Boston, Chicago, St. Louis, and Kansas City. In Dallas, contacts reported that commercial real estate had steadied or slowed since the previous report. The apartment market remained strong in most Districts. Apartment rental rates rose in New York, Chicago, and San Francisco. Contacts in Cleveland noted an increased demand for multifamily housing. Contacts in Dallas noted that apartment demand remains strong. Commercial construction increased in most Districts. Contacts in New York, Richmond, Atlanta, St. Louis, and San Francisco noted stable to strong multifamily construction. Contacts in Chicago reported moderate growth in commercial real estate, driven mainly by industrial buildings. In Boston, contacts noted that speculative construction remains limited due to high construction costs.
emphasis added

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