While the October payrolls report, due out at 8:30am on Friday, has taken on a secondary importance in light of the market’s near certainty that the Fed will hike rates in December (absent a Trump victory and/or a market crash), analysts and traders will surely be concerned any prominent outlier prints that deviate too far from the consensus estimate of 175K. So, in preview of tomorrow’s biggest economic update, here is a snapshot of what Wall Street expects.
According to consensus, while estimates point to a pick up in payrolls growth for October, but jobless claims and ADP report have sent mixed signals ahead of NFP release; still, the number should be strong enough to prompt the Fed to raise rates in December, strategists say.
This is what the latest ADP report said:
“Job growth remains strong although the pace of growth appears to be slowing,” Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, said in a statement. Moody’s produces the figures with ADP. “Behind the slowdown is businesses’ difficulty filling open positions. However, there is some weakness in construction, education and mining.”
The Nov. 2, FOMC statement was optimistic:
“The labor market has continued to strengthen and growth of economic activity has picked up from the modest pace seen in the first half of this year. Although the unemployment rate is little changed in recent months, job gains have been solid”
Summary Analyst Views:
Deutsche Bank (Joe Lavorgna)
FTN (Jim Vogel, in note)
Barclays (Michael Gapen, in note)
BMO (Ian Lyngen, in note)
Morgan Stanley (Ted Wieseman, in note)
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One notable point brought up by Joe Lavorgna, and the reason why going forward, he is “less sanguine on the labor market.” is that as the chart below indicates, “the year-over-year change in temporary hiring leads that of the overall labor market by two quarters. Temp hiring has been trending noticeably lower as of late. If temp hiring began declining outright on an annual basis, the risk of a more concerning slowdown in hiring would increase.”
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According to Southbay Research, today’s Challenger Layoffs, and seasonal retail hiring holds the key to the October Payrolls report, as retailers are scrambling for workers.
Retail stores Are Hiring Earlier
Thanks to Amazon, big box stores continue to cut store fronts.
This year brought another wave of big-box store closings (Walmart, JC Penny, Macy’s, etc). On top of that is the bankruptcy of Sports Authority.
No drop in hiring despite fewer store fronts
With hundreds of fewer brick-and-mortar stores, we should expect fewer retail seasonal workers.
In fact, the opposite is the case: (per Challenger Gray) announced seasonal retail hiring will slightly exceed last year’s. The reason: more online shopping is driving more logistical/inventory/shipping support.
Seasonal hiring kicks off in October: last year 194K people were hired (not seasonally adjusted).
More importantly, the trend over the last few years is towards earlier October hiring.
Is that the case this year?
Per Challenger Gray, October job cut announcements were (-1K), much lower than last year’s (-5K).
That could be a sign that retailers are staffing up early.
One possible driver: Halloween spending.
Per the National Retail Federation, spending this year was up 10% over last year.
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Finally, here is Goldman’s comprehensive preview of what to expect:
We forecast an increase of 185k in nonfarm payroll employment for October, slightly above consensus expectations. An expected rebound in employment growth for state and local governments, as well as education- and health care-related industries, is a key reason for the acceleration from a 156k gain in payrolls in September.
We look for a decline in the unemployment rate to 4.9%, which is now unusually high compared with continuing jobless claims. Favorable calendar effects as well as strengthening underlying wage tends likely boosted average hourly earnings by 0.3% month-over-month.
We forecast that nonfarm payroll employment increased by 185k in October, slightly more than expected by consensus estimates (+175k). Although payroll growth edged down to 156k in September, much of the slowing was concentrated in state and local government employment and (private) education and health care employment. In September these industries added just 14k jobs, compared with an average monthly increase over the prior twelve months of 61k (Exhibit 1). A partial rebound in these sectors—with other industries steady—would be enough to lift payroll growth into the high-100k range.
Expecting a Rebound in Government, Education and Health Employment
Arguing for a stronger report:
October Employment Reports Often Feature Upward Revisions
Arguing for a weaker report:
We expect that the unemployment rate declined to 4.9% in October from an unrounded 4.965% previously. On a rounded basis, the headline U3 unemployment rate edged up by one-tenth in September, and is now up three-tenths from a cyclical low of 4.7% in May. A further increase in the U3 unemployment rate would be surprising in light of the continued decline in the number of unemployment insurance benefit recipients (Exhibit 3). The U3 and U6 measures of labor utilization may take on heightened importance this month, given Fed officials’ focus on the degree of slack remaining in the labor market.
Unemployment Rate High Compared to Continuing Claims
We forecast that average hourly earnings for all workers rose by 0.3% (mom) in October, in large part reflecting favorable calendar effects. We expect the year-on-year rate to remain at 2.6%. The broader wage data remain encouraging: our wage tracker—which aggregates four measures of wage growth—also stands at 2.6% year-on-year, a sign that diminishing slack is boosting wage growth.