Regarding Friday's employment numbers, we think the warm winter likely had a positive impact, which will be diminished during the next few months. In addition, the impact of higher energy costs hasn't yet been realized by many companies and therefore is likely not yet visible in the Feb. figures. All of this, combined with a slight uptick in hiring within the public sector, we believe will result in NFP in-line or better than the 210K estimate. We think the number will be around 217K.
As usual, the private figure will be higher. Wednesday's ADP provided some color regarding that. Historically of course, ADP and BLS private payroll numbers have been very highly correlated. Although they both move in the same direction more than 95% of the time, the m/m changes can vary significantly. For example, during the last 12 months, m/m change in BLS private NFP has ranged from being 168K less to 96K more than m/m change in ADP. The BLS m/m change has come in less than the change in ADP in 5 of the last 6 months. But again, given what we discussed earlier, we think growth in BLS private payrolls will be in-line with or slightly better than the ADP growth released Wednesday. We estimate private job growth of around 235K.
If the employment numbers do beat the consensus, of course the market will react positively, but such reaction will be short lived. Even with what appears to be another successful round of kicking the Greek default-can down the road, we could see some profit taking at the end of Friday, limiting the upside for the day. While after the not-so impressive manufacturing data, the Fed and the press may have been hinting that QE3 will be launched soon, we believe the better than expected employment figures could put QE3 back on the shelf again, which would be another reason why many would do some profit taking.
In addition, given the latest rise in energy prices, next week's CPI and PPI reports will be very important, and until they are released, uncertainty in the market will likely increase. Lastly, capacity utilization, which is also scheduled to be released next week, will provide more color on how to interpret Friday's employment numbers.