MNI 5 THINGS: US August Payrolls Seen +195k, But Downside Risk

By Shikha Dave and Harrison Clarke

     WASHINGTON (MNI) - The median forecast in an MNI survey shows analysts

expect nonfarm payrolls to rise by 195,000 when the August U.S. employment

report is released on Friday morning, an improvement from the 157,000 increase

in July, but with a strong possibility that the median forecast is too high.

Private payrolls are expected to rise by 190,000. 

     Analysts also expect average hourly earnings to rise 0.2%, the average

workweek to remain at 34.5, and the unemployment rate to fall back slightly to

3.8%.

     Ahead of the release on Friday, we outline five themes for particular

attention.

--DOWNSIDE PAYROLLS RISK 

     Analysts are forecasting a gain of 195,000 for headline payrolls. In the

last 20 years, analysts have overestimated August payrolls 19 times and

underestimated it only once. This trend of overestimating is even more obvious

in the most recent 10 years, with high misses in nine of this years and in each

of the last seven years. During the last 10 years, the average overestimate was

34,110, smaller than the 43,842 average over the 20 year period, with

increasingly smaller misses in the last three years. Even so, there is a

significant chance that analysts will be disappointed by Friday's number.

--MARKETS SEE SOFTER GAIN

     Perhaps due to the tendency of analysts to aim to high, or the fact they

are nervous after the softer than expected July print, market participants are

being a bit more cautious than analysts in their predictions for Friday's

headline number. Markets are expecting a softer 179,000 for headline payrolls,

above the 157,000 gain in July, but less-optimistic than the 195,000 gain

analysts are looking for. Even so, they may also be disappointed. Like analysts,

market participants have missed to the high side seven times over the last year

compared to missing to the low side only five times. More telling, they have

missed to the high side in the same months as analysts, usually by a larger

magnitude. While that won't be the case this month due to the lower market

forecast, the data confirm the same risk of an overestimate.

--ANALYSTS VS MARKETS ON AHE 

     This month, analysts are expecting average hourly earnings to rise by 0.2%

while markets are anticipating a slightly higher 0.3% gain. In the last year,

markets have overestimated AHE five times and underestimated it three times

while analysts have overestimated six times and also underestimated three times.

Although analysts have shown a greater tendency to overestimate over the past

year, the magnitude of their overestimates, averaging 0.12pp, is smaller than

that of markets, which averages 0.16pp. This suggests there could be a slight

downside risk for August's average hourly earnings.

--ADP ADDS TO DOWNSIDE PAYROLLS RISK

     Ahead of the report on Friday, the ADP Research Institute released their

National Employment Report on Thursday, with information on hiring trends among

ADP client companies. The report stated that ADP's measure of private nonfarm

payrolls rose by 163,000 in August, below analysts' expectations for the BLS's

private payrolls figure. Over the last year and after revisions, ADP has missed

the private payrolls number by an average of 52,000, so the private payrolls

estimates are unlikely to be revised down based on ADP alone, but it lends

support to the argument that a downside miss is possible.

--CALENDAR EFFECTS DOWNSIDE AHE RISK

     Analysts have noted that a calendar effect may slightly lower the August

earnings growth number. When the 12th of the month falls towards the end of a

week, workers on bi-monthly payrolls will have one of their paychecks omitted

from the data due to the timing of the survey week, which artificially depresses

the AHE number. Since January 2016, months that have had the 12th of the week

fall on a Friday, Saturday or Sunday saw AHE growth of 0.19%, compared to 0.24%

for months where the 12th falls on the beginning or middle of a week to include

those mid-month checks. There is a chance of revision in the following month to

pick up some of these missing earnings, but the first print is vulnerable to the

calendar quirks.

--MNI Washington Bureau; tel: +1 202-371-2121; email: kevin.kastner@marketnews.com

--MNI Washington Bureau; +1 (973) 494-2611; email: harrison.clarke@marketnews.com

--MNI Washington Bureau; +1 202-372-2121; email: shikha.dave@marketnews.com

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