Tomorrow the Bureau of Labor Statistics will release May's nonfarm payroll number. According to Bloomberg, the current consensus is looking for a gain of 508,000 jobs thanks to an expected hiring of over 300,000 census workers. Consensus data goes back to February 1986 and this is by far the largest estimate ever. The previous record occurred in June 2000 (another census hiring month) when economists estimated a gain of 380,000 jobs (the actual number came in at 231,000 jobs).
As the chart below shows, the current range of estimates from highest to lowest is 650,000, by far the widest ever. These estimates range from a gain of 100,000 (Hugh Johnson, Johnson Illington Advisors) to an estimate of 750,000 (Derek Holt, Scotia Capital). This wide range is not limited to two outliers, either. Four economists are looking for payroll gains of less than 300,000 and four others are looking for gains of 700,000 or more. So even an average of the four highest and lowest produces the widest spread ever seen.
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The largest payroll miss ever occurred in March 1996 when a consensus forecast of 297,000 was blown away by a record increase of 705,000 jobs (for a miss of 409,000). For this record to fall, May payrolls would have to come in at over 910,000. This would be an all-time first-release record and is not likely (the old record was 733,000, September 1983). The largest miss in the other direction occurred in March 2003 when a consensus estimate of 20,000 was shocked as jobs actually declined by 308,000 (for a miss of 328,000). For this record to fall, May payrolls would have to come in at 177,000 or less. This is not only possible, but within the current range of estimates!
The chart below shows a rolling 12-month average of payrolls misses. The average miss on payroll estimates over the past year has been roughly 70,000 jobs. That said, none of the consensus estimates in the last 12 months have been as extreme as the May 2010 estimate. With extreme guesses come extreme misses.
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The confusion this month is largely due to the number of census workers hired. The consensus believes about 300,000 were hired, meaning the number of jobs created ex-census is about 200,000. While this sounds simple enough, a deeper look muddles the issue a bit.
In the first chart above, note that April 2000 saw a then-record range of estimates of 440,000 jobs (a record that held until this month). April 2000 was also a census hiring month that produced extreme uncertainty/confusion. Additionally, in May 1990, another census hiring month, the consensus expected a gain 370,000 (third-highest estimate ever, behind this month and the census hiring month of June 2000). The market was shocked when May 1990 payrolls printed a meager 64,000 jobs (a miss of 306,000, the second largest over-estimate ever). So, while it is easy to understand why estimates for May 2010 payrolls are all over the place, the reality is census month estimates often produce a record range of opinions and record misses. This month is currently shaping up as the largest extreme ever.
With a record range and a history of huge misses when census workers are involved, how does one intepret May's payrolls results? This is a good question and we have no answers.
If payrolls do print 500,000 jobs, is this a non-event because it is the estimate and expected? To repeat, will one of the largest payroll numbers ever printed be a non-event?
If May estimates are off by hundreds of thousands of jobs, does this rock the markets? Or, does the fact that the range of estimates is over 650,000 jobs mean there is no strong consensus and therefore no strong opinion?
Friday June 4 should be interesting as the market is about to get a payroll release with a consensus about as confused as it has ever been.
Iâ??m hoping for a huge number.
Watch the Mar 11 Fed Funds contract â?¦ http://www.cmegroup.com/trading/interest-rates/stir/30-day-federal-fund.html
If this thing falls to 99.40 or so, I will be buying â?¦ in size. The Fed isnâ??t moving for a long long time.
The Presidentâ??s latest speech seems to indicate that the major surprise will be to the upside.
The key word in the headline is GUESS.
It is tough to make predictions, especially about the future. â?? YOGI BERRA
Why are we such suckers for predictions? http://viewpointsofacommoditytrader.com/419/suckers-for-prediction/
Wag the dog. Why do we even bother to count the census jobs with real jobs? Compute everything as usual then add census jobs.
Rather than get giddy about a bunch of temporary gov hires we should be paying attention to the layoffs & furloughs that state & local govs are being forced to make.
I wonder if these furloughs are accounted for, just reduced average work hours in a week or equivalent number of positions eliminated? Reduced work hours would be truer and a lot more palatable.
According to Mr. Natural, as he used to say, back in the â??70s, "it donâ??t mean sheeeeit."?
That sentiment would seem to apply here. Fudged numbers lead to irrational responses. The gulf between reality and perception becomes deeper and wider with each fudging. That's the meaning of it all.
â??confusion this month is largely due to the number of census workers hiredâ?
I donâ??t get you economist and what is a focus point .. why is a person doing a needed (required) job a negative / because its a government job / why so / because taxes pay the salary > the money will recirculate creating taxes paid back to the government coffers and into the pockets of the private sector
lets talk about needed jobs .. or what really is GDP .. I rag on song & dance jobs because they circulate money in the USA primarily .. sure its employment and is a job to count and someone is doing something for the cash .. but ITS about money flow & trade deficits really .. does China care that we have 80 channels of tv programming funded by tv spots from the pockets of the USA consumer / NO they donâ??t / they have their own tv channels â?¦ do they care about Hockey and Baseball and Football and Soccer (ok maybe Soccer) (so why donâ??t we focus on Soccer here?) .. what matters above ALL else in the jobs front > ARE WE creating things here with our labor that are exportable to balance the trade â?¦ if we donâ??t balance trade the rest of this is all smoke and mirrors economist crap â?¦ did you notice something over the past 5 or 10 years / the exportable product of sports song and dance got bought up by foreign corporations ie beer .. *coda
Get this concept on jobs .. we are expelling our labor energy to police the world primarily here in the USA .. and to enrich the corporation Estate while weâ??re at it
.. I think itâ??s this capâ??ism bias we have in this country and also (more like it) to herd the blind into a fasâ??ism complex .. all manna is coming from a government hand now days .. I donâ??t see a problem with government spending as long as it stays in balance .. and if we really focused on PayGo weâ??d start wondering why we are policeâ??g the world with our labor treasure children and trade deficit .. *coda (maybe thats the master plan via the FED â?? Trade â?? Commerce Departments)
The number of census workers hired is already known, it was about 415,000 net hires for May. It took me about five minutes to find the data last week, way over the attention span of the average Wall St commentator.
Proving once again that the consensus is made up of mindless morons and this gibbering post about how inaccurate they may be is just more verbal masturbation from blogdomâ?¦
Does anyone on Wall St actually do any work?
The number will be in the high end (600k) or so. This number is preordain and has been â??printedâ? by the government. It is a fake. It means nothing (long term) but all the media outlets will declare â??mission accomplishedâ? (well all but fox news).
Re your 1st graph, the range of payroll guesses, wouldnâ??t it make more sense to use the standard deviation as a measure? What Iâ??m interested in here is the average deviation from the mean estimate not simply the difference between the highest estimate and the lowest. As you point out the latter figure could be the result of one or two outliers even if it is not in this month.
ps â?? â??does China care that we have 80 channels of tv programmingâ? .. ok maybe we hooked them on the concept of tv song and dance and they want it .. now that 3D porn is coming into the mix â?? I think that 6000 year old culture is gonna start gaggâ??g on the LadyGaga spoon
Barry,
This highlights one of my pet peeves about economic forecasting: in spite of all the mathematical elegance in the models, no one seems to understand the concept of standard deviation (or rounding for that matter). Instead of reporting just the mean, why not report the SD so that when the actual number does not exactly match the consensus guess (which is the mean), there would be better sense of whether the actual figure is within the expected range of the consensus?
Iâ??m left with the conclusion that there is a strong desire to only report the mean so that there will always be a â??surpriseâ? in either direction so that trading opportunities will be created no matter what.
Rounding errors bother me as well: consensus â?? 0.1% versus actual 0.2%. Wow, what a surprise, double expectations, big trading opportunity. But if you carry the figures out one more decimal place, then 0.06 versus 0.24 is very different from 0.14 versus 0.16, but thereâ??s no way to tell. And I doubt the MSM would understand it anyway.
Does anyone have a number (and better yet, a source) for the number of new jobs needed (on an annualized basis) per month to keep up with populations growth?
If the stock market is at all efficient, the report on Friday, as phony as a clinton apology, its effect is already priced in.
@flipspiceland
two points â?¦
1) I believe there is already evidence in abundance that the â??efficient marketâ? theory is hokum, for many reasons, not the least being that it ignores the reality of deception and fraud.
2) It is inappropriate to refer to the process of equities manipulation by a few entities as a â??stock marketâ?. The private investor is all but gone from the markets.
fuggedaboutit on my query for needed job growth to match that provided by population increases.
Iâ??ve been googling the â??birth death modelâ? and have a number of promising leads (before folks get all excited, Iâ??m not looking to mash that number into other numbers, only to use it in isolation as an approximate bar beyond which real job creation must go before I deem it to have any meaning. And the error bar around the official birth-death model is large, IMHO).
Constant â?? About 150K â?? Just google â??jobs needed to keep up with population growthâ? and youâ??ll find all the sources you could dream of
The ADP # out today points to roughly 50,000-75,000 private sector jobs . Even a number as high as 700,000 will be reversed in the next month or two anyway .
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