A client note from Goldman Sachs (GS) projects Friday’s Employment Situation report from the Bureau of Labor Statistics to be well below analyst expectations – closer to 200,000 than the consensus forecast of 230,000.
“Labor market indicators were weaker on balance in January, with declines in the employment components of major business surveys pointing to a slower rate of hiring after four consecutive months in which payroll employment gains exceeded 250k,” the client note says. “We also expect a one-tenth decline in the unemployment rate to 5.5%, and an above-trend +0.4% gain in average hourly earnings following an unexpected drop in December that was driven in part by calendar distortions.”
Service sector surveys suggest the weakness is in nonmanufacturing employment.
“The ISM nonmanufacturing employment index—which we have found to be one of the better predictors of nonfarm payrolls—fell 4.1pt to 51.6. The employment components of the New York, Richmond, and Dallas Fed service sector surveys also all declined on the month,” Goldman analysts say. “Only the employment component of the Markit services PMI improved in January, picking up slightly from its December low. Service-sector employment gains slowed substantially to 173k in December and averaged 195k in 2014.”
Furthermore, they cite this week’s rising initial jobless claims and theChallenger Gray & Christmas job cuts report, and the weakness of the ADP employment report and Gallup this week, as indicators of softer than expected job gains.