US payroll employment is an overrated economic statistic – the jobs tally is, at best, a coincident indicator of the economy while the “noise” element of early estimates is high. The August figure to be released on Friday, however, deserves attention because of its likely influence on whether the Fed launches QE3 next week. While forecasting is hazardous, there are several reasons for thinking that risks lie to the downside of the 125,000 rise expected by the consensus, according to Thomson Reuters:
The headline payrolls measure based on a survey of firms has diverged recently from an alternative measure derived from a poll of households. The July household survey reading was little changed from May and down 558,000 from a peak reached in February – the headline measure, by contrast, rose by 525,000 between February and July. The household measure seems to lead at turning points – see first chart.
Payrolls should correlate with withheld employment taxes, after allowing for wage inflation. Adjusted for seasonals and the number of working days, tax withholdings fell in August while a three-month moving average is lower than in the spring – second chart. (Caveat: tax receipts are even noisier than payrolls.)
The Monster employment index of online job postings led payrolls at the 2008 peak and 2010 trough and has stalled since February (the same month the household survey payrolls measure peaked) – third chart.
A weak August employment report could be just what Dr Bernanke ordered to quell the opposition of regional Fed “hawks” to his latest bond-buying plans.