February Employment Preview

On Friday at 8:30 AM ET, the BLS will release the employment report for February. The consensus, according to Bloomberg, is for an increase of 205,000 non-farm payroll jobs in February (with a range of estimates between 152,000 to 230,000), and for the unemployment rate to decline to 4.0%.

The BLS reported 200,000 jobs added in January.

Here is a summary of recent data:

• The ADP employment report showed an increase of 235,000 private sector payroll jobs in February. This was well above consensus expectations of 203,000 private sector payroll jobs added. The ADP report hasn’t been very useful in predicting the BLS report for any one month, but in general, this suggests employment growth above expectations.

• The ISM manufacturing employment index increased in February to 59.7%. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll increased about 30,000 in February. The ADP report indicated manufacturing jobs increased 14,000 in February.

The ISM non-manufacturing employment index decreased in February to 55.0%. A historical correlation between the ISM non-manufacturing employment index and the BLS employment report for non-manufacturing, suggests that private sector BLS non-manufacturing payroll jobs increased about 200,000 in February.

Combined, the ISM indexes suggests employment gains of about 230,000.  This suggests employment growth slightly above expectations.

Initial weekly unemployment claims averaged 222,500 in February, down from 234,500 in January. For the BLS reference week (includes the 12th of the month), initial claims were at 220,000, up from 216,000 during the reference week in January.

The slight increase during the reference week suggests a slightly weaker employment report in February than in January.

• The final February University of Michigan consumer sentiment index increased to 99.7 from the January reading of 95.7. Sentiment is frequently coincident with changes in the labor market, but there are other factors too like gasoline prices and politics.

• Merrill Lynch has introduced a new payrolls tracker based on private internal BAC data. The tracker suggests private payrolls increased by 136,000 in February, and this suggests employment growth below expectations.

• Conclusion:  In general, these reports suggest a solid employment report.  My guess – probably influenced by the new Merrill Lynch tracker, and the slight increase in unemployment claims during the reference week – is that the employment report will be below the consensus in February.

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