MNI 5 THINGS: US October Payrolls Seen Up 190K; Downside Risk

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

expect October nonfarm payrolls to rise by 190,000 when they are released on

Friday, a larger gain than the 134,000 increase in September, with a clear risk

of an overestimate. 

     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 3.7%.

The impact of Hurricane Michael, which hit in the middle of the October survey

week, could be seen in this month's report, particularly in average hours and

hourly earnings.

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

attention.

--DOWNSIDE PAYROLLS RISK

     Based on analysts' history, there is a downside risk to the headline value.

In the month of October, analysts have overestimated payrolls 12 times out of

the last 20 years and underestimated eight times, showing a slight tendency to

miss to the high side. When they overestimate, they do so by an average of

42,750 and when they underestimate it is by an average of 83,250. This suggests

that even though overestimates tend to be smaller than underestimates, it is

more likely that analysts will miss to the high side this month. In more recent

years, analysts have missed to the high side six out of the last 10 years.

--NO EARNINGS RISK

     Both markets and analysts are expecting average hourly earnings to rise by

0.2% this month. In the last year, markets have been on target for earnings

growth five times and missed seven times, having overestimated four times and

underestimated three times. When they overestimate, it is by an average of

0.18pp and when they underestimate, it is by an average of 0.17pp, indicating

that a miss in either direction this month will be by relatively the same

amount. Analysts have shown a slight tendency to overestimate, having done so

five times, and have underestimated three times. Their overestimates average

0.12pp and their underestimates average 0.13pp, also showing a miss in either

direction tends to be similar in size. With markets and analysts showing no

clear tendency to overestimate or underestimate, there is no clear risk for this

month's average hourly earnings.

--MARKETS SEE SMALLER GAIN

     This month, markets are expecting a softer gain than analysts. Markets are

anticipating a 180,000 gain while analysts are forecasting a stronger 190,000

gain. In the last year, both markets and analysts have had an even split between

overestimating and underestimating headline payrolls. Markets have overestimated

by an average of 54,667 while analysts have overestimated by 49,333.

Underestimates for markets and analysts have been smaller, averaging 35,333 and

33,167 respectively. However, based on analysts' tendency to overestimate in the

month of October and a potential drag from the impact of Hurricane Michael,

there is a slight downside risk to this month's report.

--ADP FALSE SIGNAL DUE TO STORMS

     On Wednesday, the ADP Research Institute released their monthly employment

report, which tracks hiring activity by ADP client companies. Although the ADP

report often misses the BLS report, it can give some clues as to the general

direction of employment trends in the US. The report posted an increase of

227,000 private jobs in October, a bit stronger than analysts' estimates of a

190,000 gain for BLS private payrolls. However, the ADP report does not account

for hurricane effects in the same way that the BLS does, as evidenced by the

September data when ADP called for a large private payrolls gain that did not

materialize due to Hurricane Florence.

     For the past 16 years, the ADP report has missed the BLS private industries

payrolls number by an average of 61,000 in absolute terms, overestimating

roughly as often as it underestimates. The fact that ADP reported a strong gain

in October, which was a false signal last month, combined with the analyst

tendency to overestimate October payrolls anyway, further indicates a degree of

downside risk to October payrolls.

--ANALYSTS MIXED ON HURRICANES

     Analyst expectations on the effects of Hurricanes Michael and Florence

appear mixed. Some analysts are expecting a rebound from the September report,

which was softened by Hurricane Florence, while others are expecting the effect

of Hurricane Michael to offset any possible rebound from September. Others still

are expecting that another weak report in October due to Hurricane Michael will

set November payrolls up for an even larger rebound than what would be expected

in October. Some analysts also suggest that average hourly earnings could posted

a larger-than-expected gain in October due to the storms keeping low-wage

hospitality workers at home, particularly in Florida.

--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

[TOPICS: MAUDS$,MAUPR$,M$U$$$]