January Payrolls Preview: Beware A Big Beat

After last month's dismal payrolls report, according to which the US labor market contract by a whopping 140K workers in December (primary as a result of 372K restaurant workers losing their jobs amid the latest round of covid shutdowns), renewed optimism has emerged that the worst is over for the US market and that tomorrow when the BLS reports the January payrolls, the surprise will be solidly to the upside.

Or maybe not all that solidly: as Newsquawk reports, the expectation is for headline nonfarm payrolls to rebound in January from the negative reading in December, but analysts do not seem convinced that January’s data will fully pare back the December downside, despite increasingly constructive labor market signals. While initial jobless claims data had worsened (until today when it unexpectedly smashed expectations), continuing claims data has improved; the ADP’s gauge of payrolls surprised to the upside in January, raising hopes that similar can be seen in the BLS report; within the ISM business surveys, the employment subcomponents improved in both the services and manufacturing sectors, the former rising back into growth territory.

Further propping up the optimistic view, earlier today Goldman raised its nonfarm payrolls to estimate from 125K to 200k, above the consensus of +100k, due to "stabilization in dining activity and in the severity of business restrictions" which suggests a smaller or minimal drag from the coronavirus relative to December. While Big Data employment signals were mixed in the month, the generally showed stabilization or improvement. Goldman also expects fewer seasonal layoffs of retail, leisure, and temp help workers, due to already-depressed employment levels in those industries (the BLS seasonal factors embed a decline of roughly 1.2mn workers).

On the other hand, consumer surveys have not signaled that Americans are more optimistic about labor market conditions in January. Incidentally, a far worse print would be precisely what the market wants: from a trader’s perspective, the reaction to the data – particularly in the event of a big upside beat or a big downside miss – will solidify the stimulus debate as to the argument that good data could be bad for stimulus prospects gains traction amid the improvement seen in some economic metrics, COVID trends, and vaccination rollouts recently. Alternatively, a huge miss would accelerate the passage of the Biden stimulus plan.

With that in mind, this is what consensus expects tomorrow:

  • Nonfarm payrolls:. +100k (range -250k to +450k) prev. -140k
    • Private payrolls:. +50k, (range -120k to +350k) prev. -95k
    • Manufacturing payrolls: +30k (range 0 to +77k) prev. 38k;
  • Unemployment rate: 6.7% (range 6.5% to 7.0%) prev. 6.7%
  • Average earnings m/m: +0.3% (range -0.4% to +0.8%) prev. 0.8%
  • Average earnings y/y: +5.1% y/y (range 4.5% to 6.7%) prev 5.1%

A look at some of the factors behind the growing consensus view that the job market is on the mend, courtesy of Newsquawk:

JOBLESS CLAIMS: The read from the weekly initial jobless claims data is mixed: in the week that corresponds to the BLS survey period, claims printed 914k vs 892k going into the December jobs report; continuing claims, however, have eased to 4.99mln from 5.53mln going into the December report. In the January survey window, Pandemic Unemployment Assistance claims decreased in the week by 20k, taking it to 427k – while an encouraging development, it is still higher than the 398k in the December survey window. Through a broader lens, the four-week moving average for initial jobless claims ticked up to 851.75k going into the January jobs report (vs 814.25k going into the December report), although the continuing claims trend improved, with its four-week moving verage falling to 4.998mln heading into the January report (vs 5.534mln going into the December report).

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