The US Bureau of Labour Statistics’s Non-Farm Payroll release measures the number of new jobs added to the economy in the preceding month. March data is scheduled for release this Friday, April 1, when it is expected to show a rise of 205k jobs.
The actual result may be lower, however, according to National Bank of Canada’s, Krishen Rangasamy, who has issued a note arguing a lower-than-forecast result could catch investors unawares.
His forecast is based on the extreme divergence which has grown between NFPs’ and another major gauge of employment in the US ADP Employment Change.
Whilst the two generally track each other quite closely over the long-term, they can diverge quite sharply over the short term.
This is what happened in the fourth quarter of 2015 when ADP’s underperformed NFP’s by an average of 100k per month in October and November.
However, these sharp divergences usually correct themselves in the following quarter, according to Rangasamy, with one or other of the metrics ‘snapping back' into the range.
This means there is a high probability NFP’s will be substantially lower in March, in order to correct the divergence of the previous quarter.
“The gap between the two surveys in Q4 was the largest ever recorded (see chart below). Historically, such a gap tends to be corrected the following quarter. In other words, the ADP (roughly +600K in Q1) should in principle be outperforming the private NFP (+410K in the first two months this year) in the first quarter of 2016.” Says NBC’s Rangasamy.
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NFP’s are likely to be below ADP’s in Q1, but in order for that they would need to add up to lower than the ADP total for Q1, which we now know is 600k.
Since NFP's for January and february add up to 410k the result of March is likely to be below the difference (600k – 410K), which works out as 190k. This is below the consensus 210k figure.