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REPEAT: 5 THINGS: Downside Risk To US Jobs, Earnings

Repeats Story Initially Transmitted at 16:38 GMT May 31/12:38 EST May 31
By Holly Stokes
     WASHINGTON (MNI) - Analysts expect the May U.S. employment report to bounce
back after relatively soft numbers in March and April, with a median estimate
for a gain of 194,000 for headline payrolls and a 200,000 gain for private
payrolls in May. Analysts also expect average hourly earnings to rise 0.2%,
while the average workweek remains at 34.5 and unemployment stays at 3.9%.
     Ahead of the release on Friday, we outline five themes for particular
     Market participants expect average hourly earnings to come in a little
weaker than analysts, with the whisper number tracking at a 0.1% rise. Both
markets and analysts have a slight tendency to overestimate hourly earnings,
suggesting a downside risk to the two estimates. Interestingly, this history of
overestimating is more pronounced for analysts, giving more credibility to the
lower whisper number. 
     Markets are also slightly less optimistic for the nonfarm payrolls print,
expecting a 185,000 gain in May as opposed to analysts' prediction for 194,000.
Markets and analysts have shown a tendency to overestimate payrolls in the past
year, both posting seven overestimates compared to five underestimates. Further,
both markets and analysts tend to miss by a larger degree when overestimating,
suggesting a strong downside risk.
     Adding to the likelihood that analysts may be overshooting nonfarm payrolls
by a large degree, analysts have overestimated May nonfarm payrolls 11 of the
last 20 years. Similar to this past year's misses, analysts tend to miss by a
larger degree when overestimating, with an average overestimate of 96k as
opposed to the average underestimate of 48k. While some of these larger misses
occurred more than a decade ago, the tendency to overestimate has continued in
recent years, with the last two years being overestimated.
     Analysts expect nonfarm payrolls to rise by 194,000 - which would be the
largest gain since February, when an unseasonably cold January and a flu
epidemic supported major payback and spurred the large gain. Again, analysts
look for payback, albeit more muted than February's rise, arguing that four
nor'easters in March and the coldest April in 21 years likely muted employment.
If a 194,000 print comes to fruition, this would put the print just 4,000 above
the past year's average gain, assuming no revisions. Despite historicals
pointing to a miss, if analysts are correct and there is payback, then market
participants may take this upside surprise on the last payrolls report before
the June FOMC meeting as support for further rate hikes. 
     Last month the unemployment rate slipped to a new 17-year-low, hitting
3.9%. Most analysts expect the unemployment rate to hold this low level in May,
even as discouraged workers rejoin the labor market. Further, many analysts see
it climbing down to 3.8% in the next few months, supporting the Fed's March SEP
that unemployment will hit 3.8% in 2018. Projections for a continued decline in
the unemployment rate stand in stark contrast to analysts' projections for
average hourly earnings to climb just 0.2% month/month - keeping the year/year
at 2.6% for the fourth month in a row.
--MNI Washington Bureau; +1 202-371-2121; email:

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