Monday, November 4, 2013

Will the payrolls number surprise to the downside as it did after the Clinton era shutdown?

This Friday the Labor Department releases the October non-farm payrolls numbers. Given what happened in October, the forecasts assembled by Econoday vary from down 300K for the month to up 168K (average forecast  = 120K) new jobs added - a massive range of expectations. The private payrolls number is expected to come in at 128K (mean expectation) - a fairly weak number that is nearly identical to last week's estimate by ADP (see post).

Source: Econoday

The question now is whether the government shutdown last month will result in a nasty downside surprise for payrolls. This has happened before. The second shutdown under the Clinton administration caused nonfarm payrolls to drop at the time when the labor markets were booming.
Scotiabank: - The job growth trend had sharply waned in the months prior to the shutdowns (much like this year), but then the bottom fell out in January '96 when the second and longest shutdown hit. About three-quarters of the small job loss in January 1996 was focused upon government, but it had not previously been hiring at a significant pace. The real swing factor was in the private sector that went from creating 129k jobs in December 1995 (and much more over the months before) to shedding 6k in January as hiring stopped. Job growth then super-accelerated during the following month of February '96 as pent-up hiring demand was unleashed mostly in the private sector as the shutdown became a thing of the past. We doubt that we'll get the same post-shutdown hiring boom this time because nothing has been settled by way of further shutdown risks and ongoing fiscal policy uncertainty.

Source: Scotiabank

Why is this number so important? The Fed continues to insist that the decision to "taper" securities purchases will be "data driven". And if we see a big negative surprise, the FOMC will get another excuse to kick the can down the road.
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