MNI 5 THINGS: US September Jobs Seen +188k, But Downside Risk

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

expect September nonfarm payrolls to rise by 188,000, a smaller gain than the

201,000 increase in August, with a clear risk of an overestimate. Private

payrolls are expected to rise by only 185,000 despite the 230,000 gain in the

ADP report. 

     Analysts expect average hourly earnings to rise 0.3%, the average workweek

to remain at 34.5, and the unemployment rate to fall back slightly to 3.8%. The

impact of Hurricane Florence is expected to be minimal due to its timing late in

the survey week, but could be the wildcard that could lead to another miss.

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

attention.

--DOWNSIDE RISK TO FORECASTS

     Over the past 20 years, analysts have shown a clear tendency to

overestimate the headline value, having done so 14 times with an average miss of

76,429, compared with only six underestimates that averaged 46,500. While

analysts have continued their trend of overestimates in the most recent ten

years, including the last three September reports, their misses have become

smaller. In the last ten years, they have overestimated seven times, with an

average miss of 64,429, and underestimated three times, with an average miss of

20,000.

--MARKETS, ANALYSTS AGREE ON EARNINGS

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

0.3%. In the past year, market and analyst forecasts for earnings have been the

same five times. Markets have been on target four times compared to three times

for analysts. However, markets tend to miss by a wider margin. Markets have

overestimated AHE by an average of 0.18pp and underestimated it by an average of

0.23pp, while analysts have overestimated by an average of 0.12pp and

underestimated by an average of 0.15pp. Outside of the correct misses, the split

between overestimates and underestimates was roughly equal for both analysts and

market participants, so there is no clear risk for this month's report.

--ANALYSTS SEE SOFT PAYROLLS GAIN

     Analysts are expecting Friday's headline number to post a 188,000 gain, a

more modest estimate than August's unexpected surge of 201,000. Markets, likely

because of this month's strong ADP report, are expecting to see a stronger gain

of 202,000. Even though analysts are expecting a lower number, they are still

likely to be disappointed. Over the last year, their misses have been evenly

split between higher and lower estimates, but the history for September payrolls

is tilted toward overestimates. The size of overestimates tend to be larger.

     Markets are also likely to be disappointed by this report because of their

strong tendency to overestimate. Though markets also have an even split between

overestimates and underestimates over the last year, their misses tend to be

larger on average. Figure 3: Market and Analyst Headline Payrolls Misses

--ADP REPORT UPSIDE RISK

     On Wednesday, the ADP Research Institute released their monthly National

Employment Report, which tracks hiring activity among ADP client companies.

According to the report, the ADP measure of nonfarm payrolls was 230,000, above

analysts' expectations for the BLS measurement of private payrolls. It is

important to note, however, that the ADP measure and the BLS measure often

differ by a wide margin, with the ADP measure missing the BLS number to the high

side by an average of 42,000, implying a September payrolls number in line with

the forecast median. Although analysts do not typically consider the ADP report

in their estimates, it does lend weight to the possibility of a high side miss.

It is also important to keep in mind that, unlike the BLS number, the ADP report

measures how many individuals are employed by ADP-client companies, not how many

people were actually paid. As a result, it is less likely to capture the effects

of Hurricane Florence.

--BASE EFFECTS TO IMPACT Y/Y EARNINGS

     When a 0.5% gain in average hourly earnings in September 2017 is factored

in, it is likely that the year/year rate will slip in Friday's data. In order to

maintain the current year/year pace of 2.9%, AHE would have to post a gain of

0.4% month/month in Friday's report, above the forecast of 0.3%. The forecasted

0.3% gain would lower the year/year pace to 2.8%. A rebound is likely in next

month's data since hourly earnings declined by 0.2% in October 2017.

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

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