US Payrolls Preview-Morgan Stanley

1 April 2016, 09:43
Batur Asmazoglu
There has been a recent pickup in announced job cutting plans, as companies broadly lowered their
outlooks for sales and earnings growth this year, but for now the pace of firings continues to
run at historically low levels. Indeed, revised data showed the 4-week average of initial
jobless claims falling to a record low as a share of covered workforce during the survey week for
the March employment report. Lingering caution about the economic outlook after early year
market weakness and amid rising global uncertainty we expect will lead to restraint in new hiring
continuing after an unusually large decline in the hiring rate in the latest JOLTS figures for
January, but even with a more restrained pace of hiring, if hardly anyone is being fired, net job
growth is going to be strong. Seasonal adjustment issues with retail jobs probably overstated
reported job growth in January and February, however, and we anticipate payback in March to be a
drag. There are very large seasonal swings in retail payrolls this time of year, with hundreds
of thousands of additional workers brought on for the holiday rush from October to December and
then let go in January and February. A seasonally adjusted gain in retail jobs totaling 117,000
in January and February – a twenty year high -- was actually a decline of 720,000 in NSA terms.
In part the elevated SA results just reflected that retail hiring in Q4 (+739,000 NSA) was
lighter than normal, so there were fewer temporary workers to fire. The early Easter this year
may have also caused problems with February seasonal adjustment. In any case, sluggish recent
retail sales results certainly are not consistent with retail payrolls really accelerating at the
fastest pace in twenty years, and we look for a flattening out in March. Otherwise, a
continuation of unusually warm weather in recent weeks points to some upside to outdoor
industries that start to ramp up hiring in March like construction, parks and recreations, and

There’s been no indication of a change in the longstanding 0.2% a month trend in average hourly
earnings to this point. Volatility around that trend continues to be driven by BLS’ persistent
problems adjusting for the timing of the 15th of the month payday relative the employment report
survey week. March’s calendar pattern this year, like February’s, has shown a consistent
downward bias in the post-recession period. So we estimate a 0.1% rise in AHE, which would lower
the year/year rate to 2.0% from 2.2% in February and a high of 2.6% in December.
There have large back-and-forth swings in the household survey since last spring that have
basically netted out now after a lot of weakness from June to September and then a strong
reversal from October to February. Over that period the participation rate first fell from 62.8%
to 62.4% then rebounded to 62.9%, and household survey job growth slowed to an average of 49,000
a month then accelerated to 426,000. After the down and up volatility, though, the household
survey measure of employment adjusted to establishment survey concepts now shows an average gain
of 218,000 in the past year, nearly identical to the average 216,000 for payrolls. We’re
assuming the household survey settles down in March, and a stable participation rate and a gain
in jobs in line with our payrolls estimate would leave the unemployment rate steady (after just
rounding up) at 4.9%. 
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