NFP: Seasonal distortion in the first quarter may be increasing - Wells Fargo

On Friday, the US official employment report is due. Analysts at Wells Fargo point out seasonal distortions in Q1 nonfarm payrolls data obscure analysts’ interpretation of the labor market. They see payroll growth is expected to slow only moderately this year.

Key Quotes: 

“As the calendar flipped to 2019, job growth surprised to the upside—employers added an initially reported 304,000 jobs in January. Fast forward a month, and that January gain was upwardly revised to 311,000. Hiring in February, however, slowed to a crawl as employers added only 20,000 jobs, the lowest gain in a year and a half. While January payrolls likely overstated the strength of the job market this year, payroll growth in February has understated it. Transitory factors, such as the government shutdown and unseasonably mild weather in the first month of the year, could partly be to blame for recent volatility. But even considering these factors, the whiplash between these two reports has raised some eyebrows regarding the reliability of these estimates.”

“The variation in the timing of winter storms and holidays are two factors that are likely causing seasonal distortion across the three months.”

“After the two volatile months to start this year, we suspect seasonal distortion is still affecting nonfarm payrolls data. If, as we expect, Friday’s employment report shows employers added 160,000 jobs in March, the January payroll change would be traditionally categorized as the rogue payroll print for Q1-2019.”

“Even as the expansion is on pace to become the longest on record, the increasing variability between the initial monthly payroll estimates suggests the magnitude of seasonal distortion in the first quarter may be increasing and obscuring analysts’ interpretation of the labor market.”