Goldman Upgrades Their Monthly Payrolls Estimate to 125K
Tomorrow’s job’s data is the grandaddy of ‘em all in terms of monthly economic data. Despite worsening economic data the employment data has actually remained rather strong in recent weeks. Jobless claims were down a bit this morning, the Challenger Job Report showed a decline in lay-offs, the ADP report showed 176K new private sector jobs, the ISM report showed a marginal decline in employment and then this morning’s ISM services report showed improvement in employment. All of this has economists scrambling to upgrade their estimates. Consensus currently sits at 90K, but Goldman Sachs explains their upgrade this morning (Via Zero Hedge):
“Revising Up Payroll Forecast; ISM Non-manufacturing Index Falls
1. We are upgrading our forecast for tomorrow’s nonfarm payroll report to +125k, from +75k previously. This week has featured five better-than-expected pieces of news relating to employment: 1) a relatively robust employment index in the ISM manufacturing survey, despite weaker activity overall in the sector, 2) a substantial month-over-month increase in online job advertising, 3) a much better than expected ADP employment report, 4) slightly lower new jobless claims (although it should be noted these pertain to a time period after the June employment survey was taken), and 5) an improvement in the ISM nonmanufacturing employment index. Despite the upgrade to our payroll forecast, we still expect the unemployment rate to hold at 8.2%.
2. The ISM non-manufacturing index fell to 52.1 in June from 53.7 in May, a larger decline than expected by the consensus. At its current level, the index is roughly consistent with 1.5% GDP growth. The components of the report were mixed. On the one hand, the general business activity index fell to 51.7 from 55.6 (now at the lowest level since November 2009) and the new orders index fell to 53.3 from 55.5. On the other, the employment component edged up to 52.3 from 50.8.”
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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7 Comments
You remind me how much I miss football season
Good numbers puts a nail in the QE coffin. Good numbers should sell off the market…….
That’s what I was thinking. Lately the market have all but rally on bad economic news on the hope of more QE, so if the NFP number beats, I wonder how the market will react?
The number isn’t going to be “good”, however. Say it comes in at 135K or so. That’s a “positive surprise” for this one report, but still a problem as it’s not enough to keep up with population growth let alone bring down unemployment. I look for an ugly summer of whipsaw. The number is very unlikely to quiet QE3 talk. Things are hardly great when we are getting tentatively excited about a NFP number that might be as “high” as about 40 percent of what it needs to be to start bringing down unemployment.
Cullen, what do you believe will be the best performing assets if you are correct in your macro view of a profits recession with no actual economic recession (which I believe will keep the Fed on hold). In such a scenario, I can’t see gold doing well (at least in $ terms) while the Fed remains on hold. Bonds should continue to grind higher (in price) as Fed on hold means the late 2014 language probably gets extended, but I don’t see another 20%+ rally like we saw in 2011 in the cards. Also, I struggle to see the upside in equities from a “profits recession.” Even if corporate profits remain at relatively high levels the marginal change should be enough to keep a lid on equities for a few months. At this point, leaning towards high dividend stocks, REITs, some US treasuries and cash, but curious your thoughts.
A guest asked: “what do you believe will be the best performing assets if you are correct in your macro view of a profits recession with no actual economic recession?”
I’ll attempt to answer from my limited perspective. I’m holding about 2/3 in corporate bond ETF’s like Gross’s BOND, Gundlach’s DBL, VCIT and LQD. And holding about 1/3 in defensive high-dividend sector ETFs like XLV, XLU, XLP (consumer staples) and also VOX (telecom sector). To me, slow to middling growth seems to match up not with Treasuries, but assets that are not quite as much safe havens, but not at all aggressive. Banks and Financials could suffer in such an environment.
Great call Goldman. Spot on again