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Payrolls Preview: Here Comes The Post-Hurricane Surge

Courtesy of ZeroHedge. View original post here.

Submitted by RanSquawk

The BLS will release the October Employment Report at 08:30am ET on Friday, November 3.  The Street is looking for a veritable surge in hiring following the hurricane-related disruption last month sent monthly payrolls to the first negative print in 7 years. Analysts also expect wage growth to continue rising: Median forecasts looks for 310k nonfarm payroll jobs, with average hourly earnings rising rise to 2.7% Y/Y

Key forecasts:

  • Non-farm Payrolls: 310k (120k to 420k, Prev. -33k)
  • Unemployment Rate: 4.2% (4.1% to 4.4%, Prev. 4.2%)
  • Average Earnings Y/Y: 2.7% (2.5% to 3.1% , Prev. 2.9%)
  • Average Earnings M/M: 0.2% (-0.1% to 0.8% , Prev. 0.5%)
  • Average Work Week Hours: 34.4hrs (33.4 to 34.6hrs, Prev. 34.4hrs)
  • Private Payrolls: 303k (155k to 405k, Prev. -40k)
  • Manufacturing Payrolls: 15k (5k to 34k, Prev. -1k)
  • Government Payrolls: No forecasts (Prev. 7k)
  • U6 Unemployment Rate: No forecasts (Prev. 8.3%)
  • Labour Force Participation: No forecasts (Prev. 63.1%)

TRENDS:

Headline nonfarm payrolls have averaged 148k in the first nine-months of 2017, lower than the 200k average in the first nine-months of 2016, and below the 187k 2016 average. The trend rate has been hit, in recent months, due to disruptions caused by hurricanes Harvey, Irma and Maria. The three-month rolling averages has now slipped to 91k on the back of last month’s 33k decline in payroll growth.

POTENTIAL REVISIONS TO SEPTEMBER DATA:

While the consensus view expects the October data to show a bounce back, Societe Generale warns “historical experience after Hurricane Katrina showed that hard-hit industries struggled to spring back in the following month, and that phenomenon may have repeated this October,” adding that “given the extent of the damage and flooding from Irma and Harvey, there may have been some lingering weather effects that hindered job growth.”

Analysts will be keeping an eye on September’s data following the shock decline of 33k payrolls (consensus looked for 80k payrolls to be added). While most of the drop was due to the leisure and hospitality sectors, the professional and business services sector printed just 13k payroll additions, which SocGen says is 35k below the January to August average.

WAGES:

In its latest policy statement, the FOMC noted that “labor market has continued to strengthen,” and going forward “labor market conditions will strengthen somewhat further.” However, it once again reiterated that “market-based measures of inflation compensation remain low.”

The latest Employment Cost Index data for Q3 – which tends to correlate quite well with wage growth analysts say – bodes well. But although the ECI shows compensation is rising, it has failed to spark any meaningful inflation. “Lower unemployment has not yet fed through to a meaningful acceleration in wage growth,” Capital Economics writes. “Further ahead though, with labour market conditions exceptionally tight, payroll growth will trend lower, and earnings growth may begin to rise more markedly.”

MARKET INDICATORS:

CLAIMS: Initial jobless claims were rising going into the September report, on a four-week moving-average basis; but since then, they have been ticking down. The latest data puts the four-week moving-average at 232.5k, down from 267k going into the September report. “Increasingly, it appears that the trend in claims has declined to a new low, consistent with the strengthening in surveys of labor demand,” writes Pantheon Macroeconomics. “Falling claims boost consumers' sentiment, and usually are associated with falling unemployment and a rising quits rate. The labor market continues to tighten.”

ADP: The ADP reported 235k payrolls were added to the US economy in October, greater than the consensus view which was looking for 200k. The September data, however, was revised lower slightly. “The ADP payroll private employment measure is not the best predictor of the official non-farm payroll employment at the best of times and is even less useful in the aftermath of the hurricane disruption. Accordingly, it’s probably best to ignore the data,” Capital Economics says. “The ADP measure never accounted for the full disruption of the hurricanes in September so, unsurprisingly, the bounce-back in October was minimal. But looking at September and October together, ADP employment increased by a cumulative 345,000,” which suggests that the official NFP number could come in around 378k.

CHALLENGER JOB CUTS: The survey saw US employers announcing just under 30k job cuts in October, 3% lower than October 2016, and employers have now signalled some 25% fewer job cuts than in the same period last year, Challenger said. The 2017 total YTD stands around 25% lower than the same time last year, the lowest 10-month total since 1997. “Companies are currently holding on to their workforces, but this may be the calm before the storm,” Challenger CEO said. “Another downturn could be on the horizon for early to mid-2018 and with it, the large-scale layoff announcements that typically follow. Adding to this is the possibility that global factors, including Brexit, could usher in a recession,” Challenger added.

BUSINESS SURVEYS: Markit’s flash composite PMI for October suggests that private sector job conditions saw “a solid increase supported by the steepest rise in payroll numbers at manufacturing companies since June 2015.” However, for the dominant services sector, job creation eased in the month. Nevertheless, Markit noted that “There were also positive developments in terms of staff hiring and business optimism during October, suggesting that private sector firms are gearing up for sustained growth in coming months.” It is slightly more difficult to use the ISM indices to gauge the health of the labour market this month, given the non-manufacturing release is scheduled for release on the day of the NFP release. However, the employment sub-index slipped by 0.5pts, though comfortably remains in growth territory.

WHAT BANKS DESKS ARE SAYING:

  • Barclays: We expect the October employment report to show a strong rebound in hiring after September data were suppressed by hurricane-related effects. At a decline of 33k last month, we estimate that the storms reduced growth in payroll employment by about 200k. Looking ahead to the October report, we expect nonfarm payrolls to rise by 325k. Our forecast is consistent with a quick retracement of storm-related effects, which is consistent with the signal from initial jobless claims and, indirectly, from other activity data that showed a quicker-than-expected bounce back in activity. Nearly all of this improvement should come in private sector payrolls and we expect private payrolls to rise by 320k, with the remainder coming in government payrolls. Within private payrolls, we look for a significant rebound in services employment and, in particular, leisure and hospitality employment. Elsewhere in the report, we look for the unemployment rate to hold steady at 4.2% and for average hourly earnings to rise by 0.2% m/m (2.6% y/y). We view at least part of last month’s 0.5% m/m rise in hourly earnings as distorted by storm-related factors that either held back hours for salaried employees or reduced the numbers of hourly workers from the survey.
  • BMO: We estimate Hurricanes Irma and Harvey chopped nonfarm payrolls by roughly 160,000 in September. This estimate (based on an equation that includes the number of workers absent due to bad weather) is just shy of the BLS’s tally of actual job losses in Florida and Texas last month (-135,000) relative to this year’s trend. Most workers likely returned to work in October, while other persons were hired for reconstruction efforts. Adding an assumed 160,000 rebound in payrolls to the average gain in the first eight months of the year (just over 170,000) yields a 330,000 increase in October following a 33,000 decline in September. The leisure and hospitality sector should recover most of the 111,000 jobs that were lost in September. Some payback for the astounding 906,000 increase in household survey jobs last month, coupled with a likely pullback in the participation rate, should hold the jobless rate at a 16-year low of 4.2%. Average hourly earnings will simmer down after September’s result (0.5%) was juiced by the loss of low-paying jobs in the hospitality sector. A 0.2% monthly advance would trim the yearly rate to 2.8%, while maintaining a slow upward trend.
  • Capital Economics: We are forecasting a huge 350,000 rebound in payroll employment in October, as the impact of Hurricanes Harvey and Irma is reversed. State level data show that payroll employment fell by 130,000 in Florida and by almost 10,000 in Texas in September, compared to average monthly gains of close to 20,000 for both states. If that shortfall were fully reversed in October, that would add 200,000 to payroll employment. All the indications are that the underlying pace of payroll gains has remained fairly robust. The Markit employment PMIs point to private payrolls expanding by close to 200,000. All told, we are pencilling in a 350,000 rebound in payroll employment, following the 33,000 fall in September. Even so, the unemployment rate probably held steady at 4.2% since the household employment measure is unlikely to rise much following its surge last month. Finally, wage growth was boosted last month as the hurricanes hit low-paid employment hardest. That effect will be unwound in October.
  • Deutsche Bank: With September’s soft CPI print providing a little more ammunition to the Fed’s doves, employment data is crucial to the Fed’s narrative for continued gradual rate hikes. We are expecting a sharp rebound in payroll growth (+250k forecast vs. -33k previous), supported by a dissipation of hurricane effects; low jobless claims during the survey week; and robust supporting evidence of solid job growth from the ISM employment subcomponents. However, there is considerable uncertainty around this expectation. Indeed, after Hurricane Katrina, which exhibited a similar plunge in job growth in the September 2005 print, it took until November 2005 for job growth to return to its earlier trend. Within the other details of the report, average hourly earnings growth should slow (0.1% m-o-m vs 0.5%), which could lower the year-over-year growth rate to 2.6%, down from the post-crisis high of 2.9% in September. This retracement is due both to hurricane effects, which we believe boosted September average hourly earnings growth by at least 4bp, as well as other statistical regularities that we have noticed (e.g., bias tied to when the 12th falls within the survey week and how many work days there are in the month) that also point to a softer average hourly earnings print. We expect the unemployment rate to be unchanged (4.2%) at its lowest level since early 2001. Ahead of Friday’s report, we may potentially sharpen our expectations for job growth depending on ADP employment (+240 thousand vs +136 thousand) on Wednesday.
  • HSBC: Nonfarm payrolls fell 33,000 in September. State level figures show that payroll employment in Florida fell by 127,000. This largely reflected the effects of Hurricane Irma, as many people were unable to work because their workplaces were not open or because they had temporarily been evacuated from their regions. The majority of these workers will have returned to their jobs in October and should therefore add to overall national increase in payrolls for the month. State level figures for Texas suggest that there will be a similar, but much smaller, impact from persons returning to work following Hurricane Harvey. We expect that nonfarm payrolls rose 300,000 in October. This month's release may shed some light on whether the sharp 0.5% rise in average hourly earnings in September was partly distorted by the hurricanes. The September report showed a sharp drop in food services employment which is likely to be reversed in October. Since average wages in the food service industry are lower than the national average, the temporary decline in jobs in this industry may have indirectly boosted the overall average for hourly wages. We expect that average hourly earnings were unchanged m-o-m in October. The y-o-y rate of increase could fall to 2.5%, down from 2.9% in September. In addition, we forecast the unemployment rate rose to 4.3% in October from 4.2% in September.

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