MNI 5 THINGS: US January Payrolls Seen +167k; Downside Risk

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

expect January nonfarm payrolls to rise by 167,000 when they are released on

Friday, a much more modest gain than the 312,000 surge in December, with a

slight risk of an overestimate. The US government shutdown is not expected to

have a strong impact on the headline number.

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

workweek to remain at 34.5, and the unemployment rate to hold steady at 3.9%,

though with a slight upside risk, as furloughed workers will be classified as

unemployed on temporary layoff. This month's report will also contain annual

benchmark revisions, which are expected to be small but positive on net.

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

attention.

     --DOWNSIDE RISK

     When estimating payrolls in the month of January, analysts have a tendency

to overestimate, having done so 12 out of the last 20 years by an average of

56,833. In contrast, their eight underestimates average 87,750 and include the

most recent two years. Given that a repeat of last month's surge in headline

payrolls is unlikely, there is a greater chance of analysts overestimating than

underestimating this month. A look at the past ten years shows analysts leaning

toward overestimates as well, with six misses to the high side that average

52,167. Based on analysts' history, there is a slight downside risk to this

month's estimate of 167,000.

     --MARKETS MORE OPTIMISIC

     January's whisper number of 191,000 indicates that markets are expecting

payrolls to post a much larger gain than analysts. Considering last month's

large upside surprise and expectations for net positive annual revisions as well

as minimal government shutdown effects, markets seem to be optimistic that

payrolls will see another strong month. In the last year, both markets and

analysts have overestimated payrolls five times, by an average of 59,400 and

47,000 respectively, and underestimated seven times, by an average of 57,286 and

51,857 respectively. With so many factors that can potentially affect payrolls

this month, it is uncertain if markets or analysts, or both, will be surprised.

     --EARNINGS FORECASTS VARY

     As with their expectations for headline payrolls, markets are anticipating

a larger rise in average hourly earnings than analysts. Market expectations are

for a 0.5% rise in earnings, while analysts' consensus is for a smaller 0.2%

rise. In the last year, both have been on target four times, underestimated five

times, and overestimated three times. When analysts overestimate, it is by

0.10pp compared to 0.13pp for markets. And when they underestimate, it is by

0.12 and 0.14pp respectively. With no clear directionality to their misses in

the last year, a potential miss this month could go in either direction.

     --ADP POSITIVE FOR PAYROLLS 

     The ADP Research Institute January Employment Report, released Wednesday

ahead of the payrolls release, showed an employment gain of 231,000 among ADP

client companies in January. This figure generally supports the analyst

consensus for a solid gain in January nonfarm payrolls. However, it should be

noted that the ADP figure and the BLS figure often miss each other by a wide

margin, so caution is urged when trying to make a direct linkage.

     --MINIMAL SHUTDOWN IMPACT

     Despite the furlough of 800,000 federal government workers during the

January 2019 employment survey week, some of which were forced back to work

without pay, the impact of the partial US government shutdown is expected to be

minimal. Because the affected workers will be receiving back pay, they will be

counted as employed in the establishment survey. However, the government workers

that were not called in and those contractors that were not reassigned to other

projects WILL be counted as unemployed on temporary layoff in the household

survey. Though the unemployment rate is not expected to change from 3.9%, this

does pose some upside risk. Ultimately, the largest impact is expected to come

from contractors working for the federal government rather than government

employees. For more details on how the shutdown will affect BLS data releases,

see the links below:

     https://www.bls.gov/bls/does-the-lapse-of-appropriation-for-some-federal-ag

encies-impact-bls-data-or-release-dates.htm

     https://www.bls.gov/bls/how-will-workers-impacted-by-the-lapse-of-appropria

tion-be-counted-in-fridays-employment-situation.htm

--MNI Washington Bureau; +1 202-371-2121; email: shikha.dave@marketnews.com

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

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

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