The US NFP and Unemployment Rate Results, Is the US Job Market Improving?

Friday Release Forecast Previous Consensus
8.30am Non- Farm Payrolls >-80K -20K -65K
Unemployment Rate 9.5% 9.7% 9.8%
Average Hourly Earnings +0.2% +0.2% +0.2%

Weather Impact on February NFP is most likely going to be very big because of the severe snowstorms that occurred on Feb 4-6 and Feb 9-10 that affected areas that were densely populated during the period of survey. Economists at estimate a worse figure than the consensus of the monthly payroll change (-80k vs. -20k in January), although we have an inclination to believe the figure might be significantly greater than -80k and might probably read above -120k. However traders should beware of the conflicting risk posed by the Unemployment rate figure which is tended to decline.
During major snowstorms in the past, the number of “weather workers” (those individuals who were employed but did not work due to inclement weather) has shown significant increases. In recent history, the last major weather events occurred in February 2007 (505k), January 1996 (1846k) and February 1994 (536k). In each of these snowstorms, the subsequent print on nonfarm payrolls was notably below the three-month trend leading up to the event by roughly 100k. We are inclined to believe the fallout from the latest storm bears the closest resemblance to the events of 1996. Subsequently, nonfarm payrolls were originally reported to be down 201k in January 1996. The following month then showed a massive 705k increase. Barring the weather impact, we would have forecast payrolls in the vicinity of +85k. In light of this distortion, we will pay closer attention to other series that are less likely to be influenced by the weather, such as the unemployment rate. This is because the household survey was conducted one week after the establishment survey. Based on what we are seeing in short-term unemployment duration, we expect the unemployment rate to fall further in the near term. After peaking at 10.1% in October 2009, it has since moved down to 9.7%. We expect it to decline 0.2% to 9.5% in February. Yesterday’s revisions to the Q4-2009 productivity data support our view that the labor market is posed to improve substantially. Productivity growth was revised higher (6.9% from 6.2% as previously reported) as both the numerator (stronger output) and the denominator (fewer hours worked) contributed to an even more impressive result. The three quarter change in productivity (7.4% AR) has only been matched/exceeded on three occasions since record keeping began. Productivity tends to be mean reverting, so unless demand falters, inadequately-staffed businesses will need to hire additional workers. In fact, we are already seeing evidence of this in the temporary hiring statistics, which have totaled an average gain of +68k per months over the last three months. This series is strongly correlated with permanent hiring, particularly after adjusting for a roughly three month lead.
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