US NFP Preview: 5 major banks expectations from November month’s employment report
With the calendar flipping over to last month of 2017, the all-important November month’s nonfarm payrolls report is landing today. As we get closer to the release time, here are the expectations as forecasted by the economists and researchers of 5 major banks regarding the upcoming employment report.
Most of the economists and researchers are expecting November US NFP to post a strong reading in between 175K to 195K, after the nonfarm payroll employment increased sharply by 261k. In addition, they expect the US unemployment rate to hover in between 4.2% to 4.0% range.
- We expect the jobs report for November will show above trend progress in labour market. Employment growth has been lower than that indicated by other indicators such as PMI employment index in recent months. However, we expect a partial correction of that in November now that the effect of the hurricanes is diminishing. We expect employment growth of 195,000 in November. We expect the service sector to remain the main driver of job creation with 160,000 new jobs created in November. Although 195,000 new jobs per month would not have been considered strong last year, the labour market has tightened significantly since. Therefore, the current trend (approximately 160,000 m/m) is still strong enough to keep tightening the labour market.
- We expect unemployment to remain unchanged at 4.1%. Finally, we expect that average hourly earnings increased 0.2% m/m (2.6% y/y vs 2.4% y/y in October). While most labour market indicators are strong, the slack indicators still suggest there is some slack left, as the numbers of marginally attached and part-time workers for economic reasons are still above pre-crisis levels and long-term unemployed is still elevated (see also the spider web chart on the next page). This suggests that the unemployment gap is not closed yet. One reason may be that people on the edge of the labour market do not have the necessary qualifications, as there are many positions which businesses are unable to fill.
- We expect nonfarm payroll employment to increase strongly by 180k in November, reaffirming continued labor market strength. Out of our +180k forecast, we expect the private sector to contribute 175k and government payroll employment to add 5k. In October, nonfarm payroll employment increased sharply by 261k, reflecting strong rebounds in sectors that were affected by the hurricanes in September. For November, incoming data point to continued strength in the labor market. Employment indicators in various business surveys remained elevated. In particular, the employees index of the Philly Fed survey registered 22.6. Although lower than October, this points to heathy hiring activity in the region. Further, the Conference Board’s labor market differential index reached 20.2 in November, up from an already-elevated 19.6 in October, suggesting favorable labor market conditions for job seekers. Additionally, we expect the manufacturing sector to add a healthy 20k jobs in November, which would be consistent with sustained momentum in the manufacturing and industrial sectors.
- We expect the unemployment rate to inch down to 4.0%, consistent with the strong pace of job creation. The labor force participation rate fell by 0.4pp to 62.7% in October, from an elevated 63.1% in September, driven by a sharp and peculiar increase in the flow of workers from employed to nonparticipation. We expect some of these nonparticipants to rejoin the labor market, but we do not think a possible rebound in the labor force participation rate will be enough to push up the unemployment rate in November.
- For average hourly earnings (AHE), we expect a healthy increase of 0.26% m-o-m in November, which translates to a 2.66% y-o-y rate, up from 2.43% in October. In October, AHE declined by 0.04% m-o-m. Some of the downside surprise in October can be attributed to a strong rebound in aggregate hours worked in specific hurricane-affected industries (construction and leisure & hospitality). As these series return to their means, we expect AHE to revert to trend levels
- We expect nonfarm payrolls to advance by 175k in November. Data on persons not at work due to bad weather suggest that hurricane impacts should have faded by this month, allowing payrolls to print closer to their current trend in the 150-200k range. Upward revisions to the prior two months are also likely. Meanwhile, labor market indicators (ISM, regional Fed surveys, and consumer confidence) remained supportive of solid job gains in November. We lean toward a print below 200k, consistent with the slowing trend in job growth and the level of labor market tightness.
- We expect the unemployment rate to tick higher to 4.2% from 4.1%, given the outsized decline in labor force participation that has the potential to correct. We also look for a relatively modest 0.2% m/m increase in average hourly earnings, as calendar effects are less favorable this month. That should leave earnings tracking higher on a y/y basis at 2.6% vs 2.4%, though likely to the disappointment of markets with consensus calling for a 2.7% pace.
- After such a sharp fall in jobs growth in the wake of the hurricanes (18k in September), October's 261k recovery looked slightly modest to us. This means there is a possibility that the rebound in jobs has a little further to run. Putting a number on this is tricky, but we feel consensus may be a touch too low at 195,000. Having said that, both the ADP jobs estimate and the employment component of the ISM non-manufacturing survey point to a slightly lower number - although neither are particularly reliable when it comes to predicting the official payrolls number. Either way, even a seriously disappointing figure is unlikely to bat many eyelids at the Fed. Policymakers expect job gains to gradually slow as the economy runs out of slack.
- Wage growth: Like employment, wage growth has been thrown around by the recent hurricanes. Most people who couldn't get to work because of the storms are concentrated in the leisure sector. As these workers are typically paid below-average wages, temporarily removing them from the sample meant the overall level of pay was artificially boosted in September. This effect should have largely fizzled out, and in the absence of any usual statistical quirks that often skew the data, a solid 0.3% month-on-month increase in Friday's jobs report would be encouraging. It would signal that wage growth is back on track as a strong economy, sky-high confidence and rising job-to-job flows are keeping the pressure on firms to accelerate pay rises.
- Unemployment rate: After almost a million jobs were created in September according to the household survey, it wasn't that surprising to see roughly half of those gains reverse last month. Unemployment also fell quite a bit, which resulted in quite a large exodus from the labour market. Putting this all together resulted in a 'bad' fall in the unemployment rate from 4.3% to 4.1%. There is a chance this nudges back up to 4.2% in Friday's data. But whatever the case, this is all essentially noise and shouldn't detract from what has been a remarkable fall in the unemployment rate throughout 2017 - a very encouraging sign for the economy as we head into next year.
- The past two nonfarm payroll outcomes have been heavily affected by hurricane season. After an initially reported employment decline of 33k in September (revised to +18k), employment growth surged back in October, payrolls rising 261k. That brought the six month and year-to-date averages back to 163k and 169k. Albeit down on 2016, this growth pace is still well ahead of that necessary to keep the unemployment rate unchanged (circa 100k).
- In November, we expect another robust outcome of 185k, which will see the year-to-date average sustained. Following the sizeable positive revision reported last month (+90k), there is some risk of a modest downward revision to prior months in November. Turning to the household survey, it is most likely that the unemployment rate will remain unchanged; the risk is that it edges higher to 4.2%.
Click here to read more about the NFP preview from our Chief Analyst Valeria Bednarik titled “December Payrolls ahead of Fed: Do you think they actually matter?”