Nonfarm payrolls predictions: ADP was a miss... - Nomura

Analysts at Nomura explained that they wforecast that nonfarm payrolls increased by 175k in December, following a steady gain of 178k in November.

Key Quotes:

"We expect that private payrolls gained 170k, implying that the public sector added 5k workers to its payrolls. Incoming business and consumer surveys suggest healthy hiring and job market conditions. In addition, initial and continuing claims data imply that involuntary layoffs remain quite low and firms are eager to retain workers. On the manufacturing sector, payrolls have declined for four consecutive months but the declines have slowed in recent readings. Given the better optimism from manufacturers, we expect manufacturing payrolls to remain unchanged in December. In particular, Philly Fed survey’s employment index jumped to positive territory and ISM manufacturing survey’s employment index advanced further in December."

"However, today’s ADP employment report showed that private payroll added 153k in December, weaker than expectations (Nomura: 170k, Consensus: 175k). Much of the downside surprise was due to weak readings from the goods producing sector which fell by 16k, but the service providing sector was in line with expectations. The downside surprise was not significant, but it suggests that real data may not have picked up despite a strong surge in business sentiment since the election. This reading suggests some degree of downside risks to our forecast. Also, residual seasonally from the holiday period may affect the payrolls data in December.

With more consumers opting to do their holiday shopping online, seasonal hiring patterns have been much more pronounced in the couriers and delivery service sector. Residual seasonality has diminished somewhat as the seasonal adjustment process has responded to the new patterns but still some seasonal influence still remains in the data. As such, it is possible to see some upward bias in December. In addition, we expect that unemployment rate increased slightly to 4.7% in December following a 0.3pp decline to 4.6% in November.

We think that the influx of workers returning back to the labor market, drawn by steady employment activity, will put enough upward pressure on the unemployment rate. As for wages, we expect average hourly earnings to have rebounded by 0.2% m-o-m (2.7% y-o-y) following a 0.1% decline in November.

As mentioned in previous issue of this report (US: November Employment Preview, Economics Insights, 1 December 2016), sharp swings in earnings in October and November were likely caused by transitory effect of inclement weather. We believe average hourly earnings have returned to trend."