Forex Institutional Research: Goldman Sachs Non Farm Payroll Preview

Goldman Sachs Non Farm Payroll Preview

“Goldman Sachs US Daily: January Non Farm Payroll Preview”

Key quotes from the report: 

‘We expect a 170k gain in non farm payroll employment in January, below consensus expectations of 190k—and a downward revision from our forecast at the start of the week. Labor market indicators were weaker in January, with declines in the employment components of both the ISM manufacturing and non manufacturing surveys and rising jobless claims. We also expect some payback from the unusually warm weather and residual seasonality in couriers and messengers’ employment, which boosted payrolls in 2015Q4’

‘The unemployment rate is likely to remain unchanged at 5.0%. Average hourly earnings are likely to rise at 0.4% month-over-month due mostly to calendar effects and a likely small boost from state-level minimum wage hikes’

‘Arguing for a weaker report: Jobless Claims. The four-week moving average of initial jobless claims leading into the payroll reference week rose from 271k in December to 285k in January. Jobless claims have been trending higher since their post-recession lows of early October 2015. Manufacturing surveys. The employment components of the manufacturing surveys were weaker on balance. Employment components deteriorated in the ISM manufacturing and the Markit PMI. Manufacturing employment rose by 8k last month and has been roughly flat on average over the last six months. Winter weather swings can have large effects on payrolls, and we previously estimated that unusually warm and snow-free weather boosted payroll growth by about 20k in October, 30k in November and 30k in December. We expect the January payrolls impact of the January winter storm in the Northeast to be tiny, as it occurred after the reference week’

‘Neutral factors: Service sector surveys. The employment components of the service sector surveys were mixed. Service sector employment grew 230k last month and has increased 202k on average over the last six months. The ADP employment report featured a 205k gain in private employment in January, slightly above consensus expectations and in line with the prior six months’

‘We expect the unemployment rate to remain unchanged at 5.0% in January on a rounded basis following a decline last month to 5.008%. However, we see some risk that the unemployment rate will round down to 4.9% given our expectation for a strong employment gain and the possibility of a slight decline in participation, which increased 0.14pp in December. The headline unemployment rate fell 0.6 percentage points (pp) over the last year, while the broader U6 underemployment rate dropped 1.3pp to 9.9%. The January household survey will also reflect the new population controls, which can affect the labor force size and the level of household employment. While these new population controls could add some noise to changes in the unemployment and participation rates, we do not expect large effects, if any, on the unemployment rate’

‘We expect average hourly earnings for all workers to rise 0.4% (mom) in January following a 0.04% decline in December. Our expectation for a firmer than usual rise in average hourly earnings growth is primarily due to favorable calendar effects. In addition, we estimate that minimum wage increases in about a dozen states could boost aggregate average hourly earnings by about 0.05%. However, even a 0.4% increase in January would result in a decline in the year-on-year rate to 2.3% due to unfavorable base effects. Our wage tracker currently stands at 2.6%. Apart from a technical blip in late 2012, this is the highest reading of the recovery, although it is still somewhat below our 3-3.5% estimate of the full-employment equilibrium rate’

See our NFP Trading Guide ahead of today’s release. 

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