CAN I GET YOUR NUMBER? We’re frequently asked “what’s your number?” as it relates to the monthly NFP release.
The short answer is that we don’t pretend to have an edge on the BLS employment figures.
The regional Fed and PMI surveys offer some insight as does the ADP release and, with NFP being a net number, the trend in initial claims tells us something about the separations side of the Net Hires = job findings + job separations side of the equation, but we haven’t been able to generate a predictive model to forecast the NFP number with conviction on a month-to-month basis…..so we don’t.
'Ya Get What You Get (& Don't Get Upset): The current price/quant signals and our TREND view on domestic fundamentals generally drives our positioning into the number and we simply take what BLS gives us on jobs day and respond accordingly.
In truth, we find the myopia and manic speculation surrounding the 1st Friday release pretty amusing. The trend in the employment data is obviously important, but we’re paid to take high probability macro swings. Making a convicted, precision “call” on an estimate subject to significant seasonal impacts, revisions and a standard error of +/- 50K doesn’t seem like a high probability swing.
ADP vs. NFP vs CLAIMS: That said, below we show the directional change in the ADP and Initial Claims series vs the directional change in the NFP data. Over the 2001-Present period (n = 160 months), the sequential, directional change in NFP is the same as that of the ADP series 64% of the time. The directional change in NFP vs Initial claims is correct 42% of the time (note: here we are using the claims level during the week that corresponds to the week the BLS conducts its monthly establishment survey).
So, for the NFP tea-leafers….the ADP series has been the better predictor of the NFP figure, being directionally correct ~2/3 of the time. The ADP report for August released this morning showed the sequential change in net payroll adds declined a modest -8K to +204K from a downwardly revised July total of +212K (revised down from +218k).
The current Bloomberg estimate for August Nonfarm payrolls is +230K, up sequentially from the +209K reported in July. By the numbers, the sequential decline in net payroll gains reported by ADP this morning suggests taking the other side of consensus and the 2:1 asymmetry into the print tomorrow
Joshua Steiner, CFA
Christian B. Drake