Monday, March 29, 2010

A Note on Friday's Employment Report

Going into this Friday's March employment report, the market consensus is looking for an increase of about 200,000 in nonfarm payrolls, which, on the face of it, would represent a dramatic improvement by the standards of the last two years. In fact, if such a gain were to materialize it would be the biggest monthly one in three years and only the second increase since the onset of the recession in December 2008 (the other one being a 64,000 gain last November).

The main reason though for a potentially robust increase in the March payroll data though is likely to be the estimated hiring of about 125,000 census workers during the month. (The Labor Department is likely to provide an estimate of the number of census workers for the month).

This immediately suggests that the key number in this month's report will be the "private payrolls" one, which should still show a moderate gain- anywhere from 25,000 to 125,000. Inasmuch as an increase within the latter range would still be considered as fairly unimpressive (obviously a 100,000 plus gain would be appreciably more meaningful than a 20,000 one!), it should still be viewed as consistent with the ongoing underlying improvement in labor market conditions in recent months.

Initial unemployment claims have resumed their previously stalled downtrend in the last few weeks and the employment sub-component in the ISM is turning out some healthy readings lately- the latter reflecting a broad-based improvement in manufacturing activity. Irrespective of the specific reading (that is, initial print, before the inevitable subsequent revisions) in Friday's payrolls, there is a nearly inescapable expectation that the series is poised to embark on a sustained path of moderate job creation in the coming months.

Given that the Census hiring should continue distorting the headline payrolls number through the summer months, the focus should remain solely on private payrolls in the period ahead. At this point, it is not unreasonable to look for a monthly average gain of about 100,000 in the second quarter- excluding census workers- with further gains in the workweek from its most recent 33.1 hours.

Anthony Karydakis

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