01:34 EDT / May 04
By Ian McKendry
WASHINGTON (MNI) – The markets are closely watching Friday’s non-farm payrolls number for April and one of the questions economists are asking themselves is, how big of an impact did the weather have on the first quarter?
“I think the big question really is twofold, one is, to what degree has the weather distorted the numbers the last two months, the other is, are the fundamentals deteriorating,” Stephen Stanley, chief economist at Pierpont Securities told MNI.
After averaging more than 250,000 job gains in January and February, the US economy got a splash of cold water with a disappointing 120,000 job gain in March.
Federal Reserve Chairman Ben Bernanke told reporters during a press conference following the Fed’s April policy statement that weather likely distorted the jobs numbers in the first quarter and it is more likely that jobs are growing at a 150,000 to 200,000 pace.
“The weather has probably affected a number of things, it probably brought forward some of the hiring so that it made January and February artificially strong and March artificially weak,” Bernanke said.
According to the median forecasts of an MNI survey, economists are looking for a 165,000 non-farm payroll gain with 170,000 private payroll jobs added and an unemployment rate of 8.2%.
It is worth noting though, that the median forecast has undershot the actual headline April non-farm payroll number the last four years by an average of 74,000 — although, extended out over twenty years, the average miss is almost zero.
Another factor that could contribute to making the April non-farm payroll report difficult to forecast is seasonal adjustment issues.
This year, there were four weeks in between the March and April survey week, as opposed to previous years when there were five weeks.
In 2011, the BLS non-farm payroll seasonal adjustment accounted for about one million jobs — the last time there were four weeks in between survey weeks was 2007 and the adjustment was closer to 800,000.
RBC Chief Economist Tom Porcelli said the ADP employment report which measures private payroll jobs has also had a difficult time forecasting the April non-farm payroll report.
“We did not adjust our numbers after ADP and we sort of make that a rule because it has a fairly spotty track record in terms of forecasting payrolls,” Porcelli told MNI, adding that ADP has missed the April non-farm payrolls number by about an average of 100,000 jobs.
Porcelli, who is forecasting a 160,000 gain for both non-farm payrolls and private payrolls, said he is expecting gains in manufacturing employment while government remains flat.
“Job losses in the government sector are starting to go away,” Porcelli said.
First Trust Advisors on the other hand does use the ADP report in their forecasting model and revised down their payroll expectation after the report printed a weaker than expected 119,000 job gain Wednesday morning.
“We are probably going to see slightly lower numbers than we expected,” Strider Elass, economic analyst at First Trust Advisors, told MNI.
“We think some of it might be a payback from the warmer weather,” Elass added.
A big factor of course is how the Fed judges the strength of the April report.
“We’ll continue to be watching the labor market, that’s a very important consideration,” Bernanke said during the April press conference, adding that he thinks policy is in the right place for now, but the Fed is prepared to take more action if the economy deteriorates.
Stanley at Pierpont, who is forecasting 190,000 job gains, said he thinks the Fed is likely to stand pat, and not make any additional asset purchases for now.
“I think at this point, the bar has been raised pretty high in terms of what it would take to get another round of QE or an extension of twist or any of those things,” Stanley said.
Mesirow Financial Deputy Chief Economist Adolfo Laurenti expressed similar sentiment in a conversation with MNI.
Laurenti, who is forecasting 120,000 non-farm payroll jobs added in April, said “I think QE3 has always been and will remain on the table — probably not yet as long as we see progress of some form.”
“I think 120,000 would be a disappointment but not enough to trigger action,” added.
However, Laurenti said if the next three of four payroll reports are disappointing and the unemployment rate starts to rise, “we may see additional action” by June or July.
The Employment Situation for April will be released at 8:30 a.m. ET Friday by the Bureau of Labor Statistics.
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