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Nonfarm payrolls should fall by 377,000 (But they won’t)

Let’s play “guess the nonfarm payrolls.” After all, our guess is as good as the conomists’, whose forecasts nicely fit a random distribution of hits and misses month in and month out.

My guess? The headline non farm payrolls number would be reported as a drop of 337,000 tomorrow if you believe the withholding tax data for the period covered by the survey. That would be a huge miss versus the consensus estimate of a gain of 201,000 according to Hizzoner the Mayor’s tout sheet. Rupert Hacker Murdoch’s rags are even more bullish, posting an expected gain of 210,000.

The number will be nowhere near a drop of 377,000, of course. It is an election year after all, and the February number that is the basis for the comparison will probably revised down so that the headlines aren’t screaming bad news. In addition, a big part of the reason my swag is that low has to do with the survey date. There was some weakness in early March withholding tax data that was solidly reversed late in the month. So if the number is weak, it’s probably a head fake. The withholding data was much stronger by the end of the month and if this continues April would be up huge.

I’m not a conomist, but given their record, my guess is as good as theirs, so I thought, let’s play “guess the number.” You can play along with me and place your bets accordingly. But, even assuming I’m right, which is unlikely, would a miss be bullish or bearish?

A small miss would probably be a non event. A big miss would most likely be bullish, because the players would probably start betting on more QE again. On the other hand, a beat would most likely be sold, because that would convince everybody that there really really won’t be any more QE. We’re at that stage of the game where bad economic news is bullish if it’s bad enough. Good economic news is bearish because the kids in the market playground know that it means no more candy from Dirty Old Ben.

So, how did I arrive at my wild guess?

I track the daily Federal withholding tax data for the Wall Street Examiner weekly Treasury Update. By comparing the year to year change in withholding for the survey period versus last year, adjusted for the change in wage levels, I can get an idea of the change in total employment for the month. The next trick is to convert that to a seasonally adjusted number and compare my seasonally fudged number to the seasonally adjusted number for February to get my headline number.

The government conducts its establishment survey to include the weekly payroll data for the week that includes the 12th calendar day of the month. Due to the fact that last year the 12th was on a Saturday, Houston, we had a problem. I assumed that the BLS would count that as part of the week before. If you compare that week with the same week this year, the rolling average weekly withholding for that week averaged about 1.1% higher than that week in 2011, as adjusted by the employment cost index. On that basis, nonfarm payrolls for March should be 1.1% higher than they were in March 2011. The calculation for the estimated not seasonally adjusted March payrolls was:

March 2011: 130,061,000 x 1.011 = 131,492,000.

The next step was to convert that to a seasonally adjusted guess. I backed out the SA factors for the last couple of years, and for March it has been 1.0066 times the NSA number. The calculation for the seasonally adjusted nonfarm payrolls would be:

131,492,000 x 1.0066 = 132,360,000

The February level reported last month was 132,697,000. That implies a drop of 337,000 from the February SA number. But the February number is certain to be revised, so there’s no way the BLS will report a negative number that big. Even so, if you believe that withholding taxes are a good measure of employment, then the number should be negative. Later in the month withholding taxes surged and turned strongly positive, but that should not have been included in that pay period.

In truth, I have no clue where this number will be. If the BLS uses data from the following week, they could conceivably come up with a gain, but it’s hard to see how it could reach the consensus conomist expectations of 201,000 to 210,000.

But then they have no clue either.

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