Wells Fargo Sees Big Seasonal Adjustments To Summer Payrolls

With seasonal factors pointed to by some analysts in recent disappointing employment reports, Wells Fargo takes a look at potential distortions in the summer NFP releases.

• Looking at the difference between the NSA and SA change in payrolls in 2015-2019, they conclude that four months, April, August, July and September, are usually "seasonally calm" - where seasonal swings are not likely to flip the direction of the monthly change.
• The 2020 swings were massive due to COVID though: for example, Aug 2020 had a SA vs NSA difference more than 3x larger than pre-COVID average.
• "So far, the large changes in seasonal factors over the past year were, to some extent, obscured by significant swings in payrolls during the same time period. Going forward, as payroll growth trends toward normal, seasonal effects may become more visible."
• They conclude that based on "the average monthly NSA increase in June payrolls and the pre-COVID seasonal factor, the expected net change in June 2021 payrolls is 86K. Using the new seasonal factor, however, produces a 408K job gain for June 2021—a 322K difference. The same calculations suggest a seasonal boost of 211K for July 2021 and 321K for August 2021."
• It's unclear how much of this is incorporated into consensus estimates (incl +711k for Jun).

Source: Wells Fargo Securities