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Repeats Story Initially Transmitted at 11:35 GMT Sep 1/07:35 EST Sep 1
By Holly Stokes and Sara Haire
     WASHINGTON (MNI) - Analysts expect the August nonfarm payrolls report to
deliver a strong, albeit cooled off, gain of 180k, but analysts are divided in
their expectations of the degree to which August has slowed from last month's
209k and June's 231k strong headline numbers.
     Several analysts point to strong indicators in justifying expectations for
another robust gain at a 200k level. Barclays cites the near historically low
levels of jobless claims in July and August as reason to believe that a "subdued
rate" of separation could mean yet another month of solid growth for payrolls.
Credit Suisse also forecasts a sustained 200k gain, due to positive leading
indicators, higher job vacancies, and a new cycle high for the "labor
differential" calculated from the Conference Board's consumer confidence survey.
That closely-watched measure rose to 18.1 in August from 14.5 in July and was
well above the 4.0 measure a year earlier.
     Additionally, with Amazon's aggressive hiring schemes in the first two
weeks of the month, analysts at J.P. Morgan and Deutsche Bank look for surges in
e-commerce, trade, transportation, and utilities sectors. Despite Amazon's
promise of 50k new hires, analysts caution that the actual number will fall
short of expectations. 
     Private payrolls, which Deutsche Bank states will be the single driver of
gains in headline payrolls, are forecasted at 184,000, down from July's 205,000
- but still in line with a solid gain for payrolls. On Wednesday, the ADP
national employment report saw a significant 237,000 rise, after an upward
revision to 201,000 from the originally reported 178,000 gain. This large rise
in the private payroll number ahead of the employment report is significantly
higher than the 184,000 gain forecasters are predicting in the the MNI survey. 
     In the past few months, ADP's headline number has been falling short of
real private payroll growth as reported by the BLS, though ADP has revised their
numbers upwards significantly in the past two months. However, there is a risk
that will change in August. The larger-than-expected gain in ADP this month
echoes a similar scenario last year, when ADP's headline number came in
significantly ahead of the BLS's initial print. While later revisions corrected
this, it was still a downside surprise.  
     Even with these strong indicators, many analysts believe there will be a
more tempered gain in August, largely due to August's recent history of
overestimates. The past six August nonfarm payrolls have been overestimated, by
43k on average - and several analysts are starting to take this history into
account. Out of the last ten years, nine have been overestimated making it a not
so subtle trend of overestimation. Deutsche Bank states that this tendency to
overestimate August has offset what would have been an upside risk to its
headline payroll forecast of 185k. Additionally, J.P. Morgan warns that August
tends to post below-average gains, noting that since 2000 the average monthly
gain has been around 185,000, while August's average has been only 154,000. 
     While August's history of overestimates has depressed some analysts'
forecasts, others, such as Credit Suisse, believe the past six years are only a
coincidence - and continue to forecast for a third consecutive gain of 200k or
higher. Analysts at Capital Economics recognize that some expectations will be
softer because of longstanding problems with the August data, but assert that
the overestimates are due to a substantial margin of error when estimating
August data. 
     However, even if August's history of overestimates is only a coincidence,
analysts have other reasons to expect a more moderate gain. Morgan Stanley
explains that a softer gain may be due not to problems of demand, but supply -
noting continued reports of skilled labor shortages. Sustaining this concern,
July's NFIB Small Business Survey reported a near-record high percentage of job
openings with no or few qualified applicants. This labor shortage underlies the
cautions of Westpac and other analysts that, after reaching a point past full
employment, 200k+ payroll gains are no longer sustainable.
     Analysts generally agree that the 4.3% unemployment rate seen in July will
be unchanged in August, with some believing that it could slip even further to
4.2% this month or in the months to come due to the prevalence of reports from
companies unable to fill positions. The 4.3% unemployment rate seen in July was
already below Fed officials long-run estimate of sustainable full employment. If
the unemployment rate does fall to 4.2%, this would be the lowest rate since
January 2001, which Bank of the West claims would more than compensate for below
target inflation - allowing the FOMC to carry out original plans for balance
sheet shrinkage and another rate hike before the end of the year. Capital
Economics echoes this point, stating that unless there is a major upset in
payrolls, unemployment rate should be the major focus for the Fed.
     Low inflation readings are also leading analysts to closely watch average
hourly earnings. While most analysts anticipate a 0.2% gain in average hourly
earnings with the average work week remaining unchanged at 34.5 hours, Morgan
Stanley notes that there has been a trend of gradually rising wage growth since
the slowdown at the end of last year, suggesting a potential increase in hourly
earnings. And, should average hourly earnings climb 0.3%, as some analysts
forecast, Capital Economics believes that this will give the Fed an indication
that a rise in core inflation will soon follow. CIBC notes that an upward miss
for wages should be negative for fixed income and positive for the dollar.
However, TD Securities cautions that market response will likely be softened by
continued concern in low inflation and political risks.
--MNI Washington Bureau; tel: +1 202-371-2121; email:

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