Brace For A Very Ugly NFP Data

In its preview of tomorrow’s December payrolls report, Newsquawk reminds us that while further fiscal support for Americans has now been rubber-stamped by lawmakers, it was done so after the payroll survey period and will therefore not be reflected in the employment situation report. Which is why nobody should expect any upside surprises in tomorrow’s report, and if anything, it may well be the Trump admin’s “kitchen sink” as “finely-tuned government data” is finally allowed to catch up to reality, potentially resulting in a catastrophically bad number.

To be sure, labor market metrics have generally erred on the weaker side in the month: initial jobless claims jumped in the BLS reference week, and PUA assistance also rose, though continuing claims data fell. ADP’s gauge of private payrolls disappointed to the downside on the back of weakness in services employment, auguring poorly for the official BLS data (it is worth noting that the ADP has tended to report weaker numbers than the BLS of late).

Manufacturing and services sectors are also diverging at the employment level: ISM reported a rise in manufacturing employment in the month, but a fall into contractionary territory for services jobs. Meanwhile, Challenger reported that US employers’ planned job cuts also rose in the month.

In its unusually downbeat forecast, Goldman estimates a -50,000 print, after +245k in November and +610k in October, and also 150,000 below consensus As Goldman writes, the broad-based resurgence of the coronavirus and related business restrictions are consistent with a further deceleration in job growth, and most of the Big Data employment signals we track indicate an outright decline in December. Additionally, while continuing jobless claims declined during the payroll month, much of the drop reflected the expiration of program eligibility (as opposed to reemployment). Taken together, layoffs in leisure and hospitality and other virus-sensitive services categories temporarily halted the employment recovery that began in May, and as a result private payrolls tumbled by 100k in December according to Goldman; the worst month since the covid crisis first broke out.

That’s the bad news. The good news is that President-elect Biden has pledged further fiscal support for Americans after Democrats managed to secure control of Congress, and this might limit downside for markets if Friday’s data disappoints. Conversely, as Newsquawk accurately points out, Fed talk about tapering asset purchases has picked-up recently, and this may only get louder in the event of a big beat (which however won’t happen).

Here is what Wall Street expects:

  • Nonfarm Payrolls exp. +100k (range: -400k to +530k, prev. +245k);
  • Unemployment Rate exp. 6.7% (range: 6.5-7.2%, prev. 6.7%);
  • U6 Unemployment (prev. 12.0%);
  • Participation Rate (prev. 61.5%);
  • Private Payrolls exp. +100k (prev. +344k);
  • Manufacturing Payrolls exp. +20k (prev. +27k);
  • Government Payrolls (prev. -99k);
  • Average Earnings M/M exp. +0.2% (prev. +0.3%);
  • Average Earnings Y/Y exp. +4.4% (prev. +4.4%);
  • Average Workweek Hours exp. 34.8hrs (prev. 34.8hrs).