US DATA PREVIEW: July Payrolls Expected +181K; Analysts Differ

By Holly Stokes and Sara Haire

     WASHINGTON (MNI) - The median forecast in an MNI survey of analysts expect

July's nonfarm payroll growth to remain strong, posting an increase of 181,000,

but most do not believe it can keep pace with June's spike of 222,000.

     Analysts remain mixed on just how much weaker July will be, reporting a

range of forecasts from 169,000 to 220,000. Indicators for payroll growth remain

strong, with jobless claims near record lows, and ISM Manufacturing and

Nonmanufacturing remaining well above the 50 benchmark. Despite these strong

indicators, forecasts remain below June's 222,000 reading and well below last

July's recorded 291,000 rise in non-farm payrolls that surprised to the upside. 

     Despite the positive news leading into the report, some analysts are

concerned that June's stronger-than-expected gain could trim July's headline

number.

     Barclays states that July's numbers will be the first "clean" report since

April, with May and June skewed by a surge in the teenage labor force. Others,

like CIBC, emphasize that payrolls could be below consensus due to reports of

increased difficulty for businesses to find skilled labor. However, Goldman

Sachs questions if seasonality may still play an unaccounted role, noting that

July's payroll has risen by more than 200,000 in the past three years -

suggesting a not yet accounted for shift in seasonality, and thus an above-trend

job growth. 

     Private payrolls are expecting to post a 185,000 gain, a slight drop from

June's 187,000 rise. This forecast is above the 178,000 gain in private payrolls

reported by ADP on Wednesday morning, but well below the gains seen in previous

July's. This unaccounted shift in seasonality that Goldman Sachs mentioned could

play a factor in private payroll growth, as the original ADP number has been

underestimated by more than 50K for the month of July since 2015, suggesting

there could be another large revision for July of 2017. NatWest explains that

the average for the first half of 2017 sits at 171,000, which is in line with

the 2016 average, and is more than enough to keep up with population growth and

will put downward pressure on the unemployment rate.

     After a small uptick to 4.4% unemployment in June from a surge in the labor

force, analysts agree that July's unemployment rate should return to 4.3%. Yet,

analysts remain divided as to whether there is a labor shortage. RBC states that

with a labor-backdrop at a 16-year high, there should be a rise in people

reentering the labor force, and analysts note the summer surge of teen labor.

However, others point to business responses stating an increased difficulty to

fill open positions. 

     As reported in MNI's Reality Check on Thursday, recruiters spoke to the

need for pay hikes, bonuses, or benefits packages to entice new employees, or

simply to retain current employees in a competitive market. Additionally, the

NFIB Jobs Report showed that 35% of small businesses were unable to fill open

positions-a high since 2001. That being said, the U-6 rate shows it has been

hovering in the 8.6% range, down from 9.6% last June, which could mean those

searching for full-time positions are continuing to find them. 

     With possible labor shortages, analysts expect a 0.3% increase in average

hourly earnings, but, due to strong base effects, YoY hourly earnings will fall

to 2.4% from 2.5% in June. And as NatWest states, this will lead policymakers to

continue to question why, despite the unemployment rate declining, YoY growth in

hourly earnings has dipped since December's 2.9%. As discussed in MNI's Reality

Check, recruiters across the country are mixed as to the continuance of wage

growth -- with a recruiter in New York stating that July's increase in wage

offerings was the largest he'd seen, while a recruiter in California discussed

signs of employers nearing their pay limits, and pushback to wage growth.

--MNI Washington Bureau; tel: +1 202-371-2121; email: kevin.kastner@marketnews.com

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