Non Farm Payroll Preview

Non Farm Payroll Preview

Coming off of a disappointing March number, the probability is strong we see a return to trend.

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One of the most widely watched global economic indicators, the monthly change in non farm payrolls, will be released on Friday in the United States. After a disappointing report in March that was well below expectations, we anticipate solid potential for a surprise to the upside in the April numbers.

Given the recent volatility in this data, there are several potential opportunities for binary event trades. 


March NFP Recap

Non farm payrolls in the United States increased by 103 thousand in March of 2018, following a revised 326k in February. It was a disappointing number and the lowest reading since September and well below market expectations of 193k. Employment grew in manufacturing, health care, and mining but fell in construction and retail sectors. Much of the drop in construction can be attributed to weather related issues in March, especially in the Northeast.

One of the most watched segments within non farm payrolls is retail. Retail employment incrementally declined in March (-4,000), after increasing by 47,000 in February. Over the year, employment in retail trade has shown little net change. Longer term, we expect dramatic contraction in retail as shopping revenue continues to race online.  At some point in the medium term, retail should become a drag on overall employment.

The change in total nonfarm payroll employment for January was revised down from 239,000 to 176,000, and the change for February was revised up from 313,000 to 326,000.


April NFP Forecast

After evaluating several proprietary analytic models that analyze currents trending, we see a significantly elevated probability for a monthly change in the neighborhood of 190k-200k jobs, with a point forecast of 194k jobs. There is meaningful risk to the upside of this number.

We see several factors driving a strong increase over March. Primarily, over performance could come from improving weather throughout April, which would allow for a lift in construction employment which would clear the backlog from March.

The 3 and 6 month moving averages are both over 200k, and we see a strong probability for a return to this trend in the April report.

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