MNI DATA PREVIEW: Dec Payroll Report To Finish Year Strong

By Holly Stokes

HIGHLIGHTS:

- Nonfarm payrolls are expected to rise 190,000, returning 2017 year average to

its pre storm level.

- No clear risk to nonfarm payrolls given slight trend over past 10 years to

overestimate but more recent trend to underestimate.

- Unemployment rate expected to stay at 17-year-low 4.1%, with a chance of a

small surprise given upcoming benchmark revisions.

- Average hourly wages are forecast to rise 0.3% in the month, but stay at 2.5%

yearly, which could be positive for the dollar.

     WASHINGTON (MNI)- Analysts anticipate yet another strong gain for December

nonfarm payrolls, with expectations of a robust 190,000 gain for the headline

and 185,000 for private, based on estimates in an MNI survey of economists. 

     Additionally, the unemployment rate is expected to hold steady at a

17-year-low of 4.1% for the third month in a row. Analysts' expectations for

wage inflation are for a modest 0.3% gain, while the average workweek is

expected to remain at 34.5 hours.

     Analysts expecting near 200,000 gains in payrolls cite all-time high small

business hiring plans in the NFIB jobs report, as well as elevated employment

indices in ISM and Markit reports.  However, experts at the National Bank of

Canada predict a softer, albeit healthy, 170,000 gain due to higher initial

jobless claims. But, Morgan Stanley argues that claims are always volatile this

time of year, and thus do not signal a weakening in payrolls. 

     Payrolls growth was stronger than 200,000 in both October and November,

nearly compensating for September's hurricane damage - with the November

year-to-date average 2,000 less than August's year-to-date average of 176,000.

If the survey forecast of 190,000 is correct, the year-to-date average will

return to the 176,000 level before the storms. 

     Though a healthy 176,000 yearly average would signify a full normalization

from the storms' impact, it does show a very gradual slowdown in job growth from

2016's 187,000 average and 2015's 226,000. Accordingly, Capital Economics states

that this downward trend will likely mean the average monthly gain will fall

below 150,000 in the second half of 2018.

     However, Capital Economics is quick to caution that this slowing growth in

payrolls should not be seen as a disappointment, as it is a simple reality of

nearing full employment. They instead insist that economic growth is being

achieved via growth in productivity rather than employment. 

--NO CLEAR FORECAST RISK 

     In six of the past ten Decembers, forecasts have overestimated payrolls.

However, in the past six years, there have been four small underestimates -

indicating no clear risk. 

     The seasonality of December also throws in some uncertainty, as seasonal

factors expect robust holiday hiring. However, if CIBC is correct that holiday

hiring occurred earlier than usual, this could mean a downward surprise. 

     On the upside, the ADP employment report came in a bit stronger for

December, with a 250,000 gain for private payrolls, so there is some upside risk

for Friday's report.

--UNEMPLOYMENT RATE AT HISTORIC LOW

     With expectations for continued hiring strength, analysts predict that the

unemployment rate should stick at the historic low of 4.1%. The recent decline

in unemployment is due to a low labor force participation rate reported in the

household survey, which analysts such as BMO attribute to a "tug of war" between

retiring baby boomers and returning discouraged workers. 

     Amidst this low participation rate and expectations for yet another steep

increase in payrolls, some analysts believe unemployment could even tick down to

4.0% - putting the rate at a new 17-year low. However, with benchmark annual

revisions set to be included in the household survey data Friday, analysts warn

that there could be a small shift in the history of the unemployment rate over

the last year.

--MODEST WAGE INCREASES

     With the continuingly tightening labor market, analysts are hopeful for a

modest rise of 0.3% in average hourly earnings. However, given base effects,

this would hold the year/year rate at 2.5%. 

     CIBC expects that wage pressure will remain slow throughout the first half

of the new year, allowing the Fed to hike rates only two times in 2018. However,

given the recent heightened market reaction to wage figures, they expect that

even a figure in line with consensus could prove positive for the dollar. 

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

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