Wednesday, March 05, 2014

Employment Preview for February: Another Weak Report

by Calculated Risk on 3/05/2014 03:41:00 PM

Friday at 8:30 AM ET, the BLS will release the employment report for February. The consensus is for an increase of 150,000 non-farm payroll jobs in February, and for the unemployment rate to be unchanged at 6.6%.

Note: This was an unusually harsh winter, and the weather apparently impacted hiring in December, January and in February too. The Fed's beige book today mentioned weather 119 times (including all the District reports). In the January beige book, weather was only mentioned 21 times. In the March 2013 beige book, weather was mentioned 18 times. So weather could be a significant factor in the February report.

Here is a summary of recent data:

• The ADP employment report showed an increase of 139,000 private sector payroll jobs in February. This was below expectations of 158,000 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 below expectations.

• The ISM manufacturing employment index was unchanged in February at 52.3%. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll jobs decreased about 7,000 in February. The ADP report indicated a 1,000 increase for manufacturing jobs in February.

The ISM non-manufacturing employment index decreased in February to 47.5% from 56.4% in January. A historical correlation between the ISM non-manufacturing index and the BLS employment report for non-manufacturing, suggests that private sector BLS reported payroll jobs for non-manufacturing were unchanged in February.

Taken together, these surveys suggest around 6,000 fewer jobs in February - far below the consensus forecast.

Initial weekly unemployment claims averaged close to 338,000 in February. This was up from an average of 333,000 in January.   For the BLS reference week (includes the 12th of the month), initial claims were at 334,000; this was up slightly from 329,000 during the reference week in January.

This suggests mostly layoffs in line with the consensus forecast.

• The final February Reuters / University of Michigan consumer sentiment index increased to 81.6 from the January reading of 81.2. This is frequently coincident with changes in the labor market, but there are other factors too.

• The small business index from Intuit showed no change in small business employment in February.

• Conclusion: Usually the data is mixed, but the data this month was fairly weak across the board. The ADP report was lower in February compared to the initial January report (January was revised down in the report today), the Intuit small business index showed no hiring, and the ISM surveys suggest essentially no change in payrolls in February

There is always some randomness to the employment report - and the timing and survey methods are different than for some other reports - but my guess is the BLS report will be under the consensus forecast of 150,000 nonfarm payrolls jobs added in February.