REPEAT: MNI: 5 Things To Look For: US Employment Report

Repeats Story Initially Transmitted at 20:31 GMT Feb 1/15:31 EST Feb 1

By Sara Haire and Holly Stokes

     WASHINGTON (MNI) - The Employment Situation Report will be released Friday,

with the median forecast among analysts in an MNI survey expecting a 185k gain

for headline nonfarm payrolls and a 183k gain for private payrolls. While some

analysts are expecting a drop in the unemployment rate to 4.0%, the median

expectation is set to remain at 4.1%. Analysts are split between expecting a

slowdown in average hourly earnings to a 0.1% gain or seeing a 0.3% gain, but

the median expectation sees a deceleration to a 0.2% gain for average hourly

earnings. Average weekly hours are expected to remain at 34.5 for the third

straight month. 

     Ahead of the release, we outline five themes for particular attention.

--TENDENCY TO OVERESTIMATE PAYROLLS 

     An MNI survey of analysts and the whisper number point to 185k and 190k

gains, respectively, in nonfarm payrolls. Recently both markets and analysts

have tended to overestimate payrolls, aiming to the high side four of the past

five months. The absolute average of the whisper number misses in the past year

is 50k, while the survey's absolute average miss is 46k, suggesting the survey

comes in closer to the first estimate. Additionally, in the past 10 years,

analysts have overestimated January seven times. This suggests a possible

downside risk to the nonfarm payrolls estimate.

--WAGE GAINS COULD DISAPPOINT MARKET PARTICIPANTS 

     Market participants expect a stronger gain in average hourly earnings than

the median forecast of analysts, with the whisper number at a 0.3% rise compared

to the survey's 0.2%. However, in the past year, analysts have only

underestimated average hourly earnings once, with a much stronger tendency to

overestimate - making the chance of a higher than 0.2% gain less likely. Because

markets anticipate a 0.3% rise in average hourly earnings, they are unlikely to

have a strong reaction to a high print unless an unlikely 0.4% gain is reported.

If average hourly earnings surprises market participants to the low side

however, equities may sell off. 

--SOFT WAGE GAINS AMIDST TIGHT LABOR MARKET 

     Wage inflation has remained soft despite a tightening labor market.

Analysts expect month/month average hourly earnings to increase 0.2%, meaning

the year/year rate would hold steady at a high 2.5% after rounding. This rate is

1.1pp lower than the point that wage inflation reached when unemployment was as

high as 4.6%. This softer pace of earnings growth comes despite the unemployment

rate hovering at a 17-year low of 4.1% in December, with some analysts even

expecting a decline to 4.0% in the January period. Even if January average

hourly earnings manage to rise by the survey high of 0.3% month/month thus

reaching a low 2.7% year/year after rounding, this still raises the question of

why wage inflation has remained below recession levels as employers struggle to

fill positions. However, as benchmark revisions will be included in this report,

average hourly earnings could see adjustments. 

--FIRST TEST FOR TAX REFORM 

     The January report will serve as an early barometer of just how effective

the tax reform was in generating income gains. Given anecdotes of companies

raising wages in response to the recent legislation, some analysts are

optimistic that average hourly earnings could rise by 0.3% month/month for the

second month in a row. It is important to note that one-time bonuses will not be

accounted for in the data. Analysts also note the possibility of gains coming

from 18 states raising their minimum wages. However, some analysts note that

average hourly earnings could surprise to the low side due to increases in

bi-monthly pay not being captured, as the 15th of the month just missed the

survey week.

--INITIAL JOBLESS CLAIMS POINT TO HEALTHY PAYROLLS 

     Initial unemployment claims fell to 216,000 in the January 13 survey week,

the lowest level seen since February 24, 1973. The claims data were relatively

unscathed during the holiday season due to fewer temporary workers being hired

and then later fired after the holidays. In the past two years, the difference

in the survey weeks for claims data has a relatively inverse relationship with

the change in nonfarm payrolls for the applicable month. Last year, claims fell

24,000 in the January survey week from December's survey week and nonfarm

payrolls subsequently saw a 216,000 gain. The survey week for this January saw a

29,000 decline from the survey week in December. If nonfarm payrolls follows

this trend, there should be another healthy gain for this January. 

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

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