The distribution of forecasts this time around has the headline number in a range of 19k to 155k. The most bullish end of the range comes from Jefferies, who forecast non-farm payrolls at 155k with private payrolls at 90k. At the same time, the firm also sees the unemployment rate dropping back down to 4.3% in December.
So, let’s take a look at their argument as to why they believe the labour market picture is going to turn for the better.
“We are expecting what will look like a remarkably strong December employment report, a reversal of the
rising unemployment trend and one of the strongest-looking prints in several months. However, these impressive headlines are a consequence of calendar quirks combined with payback
effects from October and November distortions that grossly overstate the difference in demand for labor in
December.”
So, it would seem that they see the numbers coming in strong as part of a reversal of the distortions from the November report last month. As a reminder, there was no October report amid the longest US government shutdown in history.
Jefferies dives deeper into the supposed “calendar quirk” with a little math of their own. But the thing is, did they get their calendar dates wrong? I must digress that the dates that they are putting out somewhat makes sense when you view it as ‘November’ (the shutdown ended on 12 November) instead of ‘December’. So, just keep that in mind when you read the passage below:
“An expectation of a +65k m/m increase [for government employees] may seem like we’re going out on a
limb. However, this has nothing to do with a change of heart in the approach to government employment
and everything to do with calendar quirks. Recall that the Establishment Survey measures the number of
workers that are on payroll (and receive pay) during the week that contains the 12th of the month. For
December, this is the week that began on Sunday, December 8, and ended on Saturday, December 13.
The government shutdown ended on Wednesday, December 10, and workers were expected to be back at
work the following day, Thursday, December 11. Assuming that all workers followed orders immediately,
one would expect that furloughed workers would have returned by Thursday or Friday, worked some hours,
and received pay. If this is the case, then they would not be counted on payrolls for
November, but instead they would be counted in December.”
So, yeah. You can sort of get the gist of it in that the workers surveyed would not have been on payroll in November but they would be for December. I’ll just take that and ignore their math of working that out with the dates above, unless I am the one reading it completely wrong. Feel free to correct me if so.
As for the unemployment rate, Jefferies notes that:
“We feel confident that the +1.191m increase in the
labor force from August through November will be followed by a mean-reverting decline of about 300k.
Assuming that employment rises by +100k, similar to November, this would translate to a -400k decline in
household unemployment, and an unemployment rate of 4.338%. For illustrative purposes, if we were to
instead assume that household employment falls -100k, unemployment falls -400k, and the labor force
contracts -500k, this would still put the unemployment rate at 4.343%.”
