SMBC Nikko On Nonfarms & Jobs

SMBC Nikko highlights the low response rate in nonfarm payrolls, suggesting potential inaccuracies and revisions, emphasizes the need to benchmark to tax receipts for a comprehensive labor market view, and notes the disproportionate impact of government-related spending on job growth, predicting softer payroll gains in the second half of 2024.

• " The nonfarm payrolls response rate remains depressed, hovering in the low 40% range compared to around 60% pre-Covid. This means government statisticians have to “fill in” for missing respondents, possibly leading to inaccuracies. Only after NFP is benchmarked to tax receipts will we have a complete picture of the labor market. The current low response rate could be the reason why NFP continues to be revised lower and why there are inconsistencies with other parts of the employment report, such as the Household Survey. The latter shows significantly fewer job gains than NFP"
• "The labor market continues to get big contributions from government and government-related spending. Hiring at the federal, state and local level combined with the healthcare sector (heavily dependent upon government policy) continues to generate a disproportionate share of overall employment. Last month, these areas accounted for 62% of job growth. Hence, the reported 275k February job additions do not reflect underlying labor demand. We expect underlying payroll gains to remain soft and possibly slow significantly by the second half of 2024. "