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Economy Title: Wrightson On Payrolls Expectations for this morning’s employment report have gotten steadily less buoyant all week. Payroll growth still seems likely to be positive, but hopes for a breakout report have dimmed. We look for an increase of 125K in nonfarm payrolls, more than half of which would come from the public sector. We have also revised our projection for the unemployment rate up, and now share the median market forecast of an unchanged rate of 9.7%. Nonfarm Payrolls. Like many analysts, we lowered our payroll forecast after Wednesday’s ADP report. We now look for a 50K increase in private payrolls, a Census-driven 100K increase in federal payrolls, and a 25K decline in state and local government employment this morning, resulting in a net increase of 125K. Consensus surveys suggest that the median Street estimate has come down modestly as well (Bloomberg’s median fell from 200K early in the week to 184K last night). If anything, the trader consensus has probably fallen farther ahead of this morning’s report. The key to this morning’s report is the growth (if any) in private payrolls. Census hiring will be transitory, so any extra contribution from that category should be ignored. Forecasts of private payrolls vary widely, due in part to uncertainty about how to read last month’s data. There was a widespread expectation that harsh winter weather would depress the February payroll figures, leading to a rebound in March. When it turned out that February payrolls held up better than expected, analysts fell into two camps. Some assumed that the underlying trend had improved enough to offset the large weather impact, while others concluded that the weather impact had been smaller than anticipated. We fall into the latter camp. We still assume there must have been at least some fallout from the record snowfall in the February survey week, but the composition of the payroll data suggest that it was very modest – perhaps as small as 25K. The combination of a gradual, ongoing improvement in the underlying trend and a small weather-related bounceback in March originally seemed likely to produce an increase of 75K in private payrolls. After the disappointing ADP numbers, we shaved that estimate to +50K. Due to the uncertainty about the size of the weather-related swing from February to March, we will focus more heavily on the average of the past two months than on the size of the March increase in private payrolls. Our forecast would put the average gain in private payrolls in February and March at +16K, versus an average of -14K in the preceding three months (and -221K in the considerably weaker three months prior to that). Unemployment Rate. The trend in unemployment insurance benefits has been less encouraging than we expected in recent weeks. Rather than falling as expected, our unofficial proxy for the total number of beneficiaries across all programs rose by a small margin between the February and March employment survey weeks. We have revised our forecast for the March unemployment rate from 9.6% to 9.7%, which brings us into line with the median market estimate. This would be the third consecutive monthly reading at that level. The improvement in the initial jobless claims data over the past two weeks suggest that the unemployment rate may resume its decline in April, but this morning’s March employment rate is unlikely to show any improvement.
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