Nonfarm Payrolls: 824,000 Jobs to Disappear

Tomorrow the arguably most important monthly US macro report, the US Labor Report, is released. But tomorrow's report is different from the 11 other reports released each year as it will be accompanied by the annual revision to Nonfarm Payrolls.

The BLS will revise the number of payrolls for the period April 2008 - March 2009 downward by no less than 824,000, which is the BLS's own preliminary estimate. The annual revision historically has averaged 0.2% of total employment, which using the March 2009 report translates to roughly 266,000 - not bad given payrolls of 133 million.

But considering how little is needed to move the market, this is certainly a large revision and importantly covers both expansions and contractions, meaning that quieter times with stable employment are included in the 0.2% average. And we already know that this year's revision will be much larger given the BLS's preliminary estimate of 824,000 (roughly 0.6% of total payrolls).

Seasonal factors are always important, and even more so in January, a month which always results in plenty of pink slips to Americans. But with so many layoffs in 2008 and 2009 the question is whether some of those seasonal jobs were simply not available any longer. If that is the case then the seasonal adjustment may understate the number of jobs lost.

The Census Bureau, the agency in charge of macro releases such as New Home Sales, Durable Goods Orders, Retail Sales, and many more, are hiring people by the thousands for temporary positions to help out with the 2010 Census. This is clearly a positive - albeit temporary - addition to Nonfarm Payrolls. In combination with seasonal factors, this has to potential to make for a very good number.

Boiling it all down:

• the level of employment will be shifted down by an estimated 824,000 for the period April 2008 to March 2009, but;
• revisions to months after March 2009 will also take place as the BLS tries to incorporate the new knowledge gained from the revision;
• the birth/death model will be revised, which impacts future releases;
• the Census Bureau hired (potentially large numbers of) temporary workers in January, which will inflate payrolls;
• seasonal factors will be revised, and the ramifications can be large in each direction;
• the revision only covers payrolls (from the Establishment Survey) and therefore does not affect the unemployment rate, which is derived from the Household Survey. Speaking of the unemployment rate we expect a slight increase to 10.1% from 10%.

The range of probable outcomes is much larger in this release than the other eleven releases of each year, but that will probably not stop the markets from (over-)reacting to almost any change in payrolls. We recommend the ADP Employment Change as a yardstick, even if the two publications differ in respect to the counting of public workers. We are close to the ADP number with a forecasted drop in payrolls of -14,000.

Saxobank

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