MacroScope

U-turns aplenty in predicting U.S. jobs growth

July 5, 2012

 

The past year of forecasting U.S. payroll growth marks a bumpy road of U-turns on the timing of an elusive turning point to sustainable recovery, an analysis of Reuters polls shows.

In early 2011, an overwhelming majority of economists — 48 of 52 in the April poll and 38 of 46 in the May poll — said that turning point already had been reached.

More than a year later, it still seems a way off.

The U.S. economy added jobs at a monthly rate of 165,000 so far in 2012, far short of the 200,000 most say is representative of strong growth in a recovering economy.

Economists scored an unfortunate hat-trick last month – vastly overestimating the rise in payrolls between March to May. Actual jobs gained in those months were lower than the lowest forecast in each related Reuters poll. To be fair, the margin of error in reporting the non-farm payrolls change is about 100,000, according to the Bureau of Labour Statistics — often leading to massive revisions in historical data.

Median estimates for June data due on Friday is for a gain of just 90,000 jobs, the lowest estimate so far this year, after the disappointing 69,000 in May, which came in 81,000 below the median expectation and 6,000 below the lowest forecast.

Even the most bullish forecasters have slashed their views for June. In a major reversal, two typically upbeat institutions, FT Advisors and Prestige Economics both expect a meagre gain of 35,000, one-third of the consensus figure.

John Silvia, chief economist at Wells Fargo was among those who had said the jobs market had reached a turning point in the April and May polls of last year.

This is what he said back then:

We believe we have reached that point, though recent signs (moderating ISM numbers, soft Q1 GDP, etc…) suggest that the pace of employment growth may slow somewhat in the near-term. We still expect to see positive employment growth going forward. We have a (forecast of) 2 million non-farm job gain in 2011 and a 2.2 million gain in 2012.

Only 1.4 million jobs were created last year. A little over 800,000 were created in the first five months of this year, leaving 1.4 million to go if that forecast is to be met.

Wells Fargo now predicts a payroll gain of 62,000 in June, their lowest forecast this year. That comes after consistently predicting gains of at least 150,000 each month so far this year.

From a research note published last week:

The paltry 69,000 non-farm job gain in May has called into question the sustainability of the U.S. economic expansion, much as the growth slowdown last year raised concerns.

Global economic uncertainty, the potential for financial contagion and the U.S. fiscal cliff are just some of the reasons employers may be hesitating.

What’s more alarming is an explosion in the list of banks now forecasting ever-smaller monthly payroll gains.

An astonishing forty-six financial institutions forecast payrolls gain of less than 100,000 in June compared to none between February and May and only one, Royal Bank of Canada forecasting a lower gain in January 2012.

For Friday’s number, a clutch of well-known — and often bullish — financial forecasters like Barclays Capital, Deutsche Bank, Goldman Sachs and RBC forecast payrolls to rise by 75,000 in June.

 

(Analysis by Sarmista Sen and Somya Gupta)

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