MNI DATA PREVIEW: Harvey to Blame for Sept Payroll Uncertainty

By Holly Stokes and Sara Haire

HIGHLIGHTS:

-Nonfarm payrolls expected at a soft 70,000 gain, but the range spans from

-45,000 to +125,000 due to uncertainty of Harvey and Irma's effect.

-Data released for September conflict with historical comparisons to

post-Katrina. The Dallas Fed's Manufacturing Survey points to signs of recovery

in the factory sector, and claims data rebounded quicker than expected.

-A slip in the Y/Y Core PCE price index, remaining under the Fed's 2.0% is no

reason for analysts to change their expectation of a rate hike in December. 

-Average hourly earnings are expected to rise 0.3%, possibly increasing market

pricings of a December hike

-Private payrolls also expects to see a 65,000 increase, coming on the heels of

ADP's 135,000 estimated gain.

-Average weekly hours to stay at 34.4 for the second month in a row. 

-The unemployment rate to hover at 4.4% for the second month in a row.

     WASHINGTON (MNI)- The headline number for September non-farm payrolls

appears to be difficult to predict, as apparent by a wide range of analysts

forecasts that spread from down 45,000 to up 125,000. As a result, some analysts

will be extremely surprised by Friday's number, but are in general agreement

that it will be well below the 3-month average of a 185,000, with a median

forecast for a 70,000 increase. 

     The survey period for the September report took place as Texas was still

adjusting to the aftermath of Harvey, and Irma was making landfall in Florida.

Credit Suisse argues that given the Houston metro area's roughly 3 million

workers and Florida's 8.6 million, that even a small disruption to labor markets

would take a heavy toll on national payroll growth. To estimate the size of the

disruption, Goldman Sachs is looking at the Bureau of Labor's statement that

11.2 million workers were employed as of March 2017 in the FEMA designated

disaster counties, which would amount to 7.7% of national employment. 

     Morgan Stanley states that despite the large population hit, only those

workers paid weekly are at risk of being counted unemployed, and thus argues

that the drag will allow for a more stable 120,000 gain. However, Societe

Generale believes that the size of the population impacted is enough to end a

seven year streak of positive payroll posts, and result in a 25,000 headline

decline. 

     Credit Suisse emphasizes analysts' uncertainty within their own forecasts,

saying they would not be surprised by a triple digit job loss nor by a moderate

response with a 100,000 gain. BMO reiterates this uncertainty, noting that

business closures in Florida will likely mean lower response rates to the BLS's

survey, resulting in what could be a depressed estimate for payrolls.

     Data released for September that should indicate a drag on employment and

productivity in Texas instead continue to defy precedence from Katrina and

expectations by analysts. Jobless claims have risen substantially, but not

nearly as much as expected. Credit Suisse points out that even though initial

claims spiked by 62,000 after Hurricane Harvey, it has come down since and it

was less than the 100,000 increase seen after Hurricane Katrina. Societe

Generale echoes this, mentioning that after Katrina, Louisiana and Mississippi

saw roughly twice the amount of claims that Texas saw after Harvey.

     In addition, the insured unemployment level, or those continuing to receive

benefits, fell by 16,000 in the September 2nd week followed up with roughly

offsetting moves in the following two weeks, an indication that people are not

having to continue to collect unemployment benefits. 

     The underlying pace for September should remain strong, with analysts

pointing to low jobless claims outside of hurricane affected regions, near

multi-decade high job openings relative to number of unemployed workers, and the

Consumer Confidence Survey's labor market differential showing increasing

consumer confidence in the ability to find a job. However, Capital Economics

suggests that the hurricanes will have a bigger impact on employment than the

claims data is capturing. 

     While September's payrolls are expected to take a hit, analysts do not

expect this softness to be long lived. Analysts sight the Dallas Federal

Reserve's September Texas Manufacturing Outlook Survey, which showed that

Texas's factory sector actually expanded in the month. In the survey, 67% of

Gulf Coast respondents indicated that their business was shut for only 1-5 days,

and only 27% said that their business was closed for longer than 5 days. This

would imply a rather quick recovery period. Further, in an exclusive interview

with MNI's Jean Yung, a bank economist for the Federal Reserve Bank of Dallas

estimated that Texas' jobs growth should return to trend by October -

emphasizing the transitory nature of the storm's drag. 

     Similar to nonfarm payrolls, private payrolls are anticipated to soften to

a 65,000 increase. This figure is also clouded in uncertainty, with a large

range from down 25,000 to up 125,000. After ADP's release Wednesday morning of a

solid 135k gain for private payrolls, analysts expecting a drop on Friday could

be met with a larger-than-anticipated gain.

     Despite a potential hit to payrolls, average hourly earnings are expected

to rebound and see a 0.3% gain after posting a soft 0.1% gain in August.

Analysts are again at odds with what will occur because of the hurricane, but

also cite a tight labor market. 

     BMO suggests that average hourly earnings have been little affected by past

hurricanes, and expects this month will be no different. However, Capital

Economics claims that lower paid, routine work will be most affected by the

hurricanes, which could cause a compositional hit to hourly earnings. Capital

Economics also contends that tighter labor market conditions have not yet stoked

stronger wage pressures, but does expect a rise soon. CIBC also sees a tight

labor market, but anticipates this to translate into a pickup in wages for

September instead. The hourly earnings growth this month could be a better

indication of an underlying positive trend. If there is higher wage growth, CIBC

claims it could increase market pricing for a Fed rate hike in December. 

     The average work week is expected to remain unchanged at 34.4 hours, with

the slight risk of dipping to 34.3 due to hurricane effects.

     The median of analysts' forecasts has unemployment staying at 4.4%.

However, analysts such as Goldman Sachs expect that, given August's unrounded

rate of 4.442% and unemployment's moderate rise after Katrina, unemployment may

tick up to 4.5%. Yet Credit Suisse assures that this rise in unemployment would

be short lived, stating it should begin to decline again towards the year end. 

     Given the storms' drag on payrolls, analysts expect both the Fed and

markets to ignore the noise. Instead, attention should remain on average hourly

wages as a signal of underlying strength.

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

--MNI Washington Bureau; +1 212-800-8517; email: sara.haire@marketnews.com

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