I wonder to what extent this extra annual variable discussed in the article below will affect the market reaction later,? it is highlighted in bold and italics at bottom of the article.
G/L
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Mads Koefoed, Macro Strategist, Saxo Bank
A couple of days from now will be the first Friday of the month and you know what that means: it’s Nonfarm day! It's unrivalled by any other monthly economic release - with market activity slowing down and coming to a complete halt just before the data is released, thereby giving investors a monthly fix.
The U.S. economy has arguably gone from being in recovery mode to expansion mode with most economic data of late pointing to the same thing: an overall improvement in the U.S. economy. We still have some reservations about the long-term sustainability of some of the current growth drivers, given the dependence on credit, but the near future looks promising. We expect these observations to translate into 150,000 new jobs in January, though the unemployment rate is expected to change for the worst to a slightly higher 9.5%.
ADP: More jobs
The ADP Employment report defied consensus yet again with a strong display, which suggests private net job hiring of almost 187,000 against expectations of 140,000. While services rose most by 166,000 (0.18 percent month-on-month), the manufacturing sector is also awakening from its slump adding 19,000 (0.16 percent). We are getting closer to the level required for sustainable reductions in the unemployment rate and, if we use the ADP as a guide alone, today’s ADP number of 187,000 points to a change in Friday’s private payrolls of 195,000. However, we caution about relying too much on the ADP report given its patchy track record of late as a predictor of private payrolls.
Other labour market reports support our forecast
Initial jobless claims may at an initial glance give the impression that the labour market soured a bit in January, with the four-month moving average of 429,000 in the most recent report from January 21. Furthermore, a few spikes have been recorded last month with readings of 447,000 and 454,000 though both were dismissed as outliers due to bad weather and seasonality. However, if we look at the week in which the nonfarm survey is conducted initial jobless claims fell to 403,000 – boosted of course by those prohibited from filing the week before due to snow. That, however, does not matter for the estimation of nonfarm payrolls and initial jobless claims, which therefore support our above-consensus forecast.
Adding to the positive news is the ISM Manufacturing report, which rose above 60 yesterday to 60.8. And more importantly, the employment index rose to 61.7 from 58.9, suggesting that the manufacturing sector continues to add jobs as also noted in the ADP Employment report. The Labor Differential from the Conference Board also improved in January to -38.2 from -41.8 almost exclusively due to those answering ‘Good’.
Unemployment rate to inch higher
The unemployment rate took a relatively steep dive in December by declining to 9.4 percent from 9.8 earlier, but it's not only due to an improving labour market. The participation rate fell to 64.3 percent from 64.5 percent a month earlier, which suggests that people are still disillusioned with the state of the job market. As people re-enter the labour market upward pressure will be exerted on the unemployment rate. Thus we expect a slight increase in the unemployment rate despite our forecast of a payrolls change of 150,000.
Overall, we expect the report to show that the economy added 150,000 net new jobs in January with the private sector doing all the work. The private sector is expected to show an increase of 160,000, which will be offset somewhat by continued distress at the State and Local sector where we see a further 10,000 decline; hence our forecast of 150,000. The unemployment rate is expected to crawl up to 9.5 percent.
Note: annual revisions to add one-third of a million to last year’s payrolls
The January labour market report is accompanied by the annual revision. We learnt in the preliminary estimate last autumn that the Bureau of Labor Statistics had overshot the actual nonfarm payrolls number by 366,000. Unless there are significant changes to the preliminary estimate when Friday’s report is released, you can expect overall payrolls as recorded in March 2010 to be revised downward by 366,000.