Forecast here: What will the US Nonfarm Payroll number for May 2016 be following its second revision?
Forecast here: What will the US Nonfarm Payroll number for April 2016 be following its second revision?

OK, so these questions look a little complicated to the outside observer but they’re fairly simple and if you can answer them consistently well, you may just land yourself a job on Wall Street.

So first things first, the Nonfarm Payroll number is the change in the number of jobs being held down by folk in the US in any given month. It’s the most keenly anticipated monthly economic data release for financial markets. The number of jobs created (or lost) over any given month is the earliest and best indication we have of how the economy is progressing. Everybody wants to get ahead of these numbers, including us here on almanis.

So what’s all this about second revisions? Well, the first thing to realise about Nonfarm Payroll numbers is that they’re erratic. When first estimates are released, normally on the first Friday following the reference month, they are based on an incomplete survey sample. Over the subsequent two months, more of the US firms in the survey respond and the estimate is revised to reflect the larger sample. Read more about this process here and here.

The reason we forecast the second revision is that it is the more accurate number and a better benchmark for our forecasting efforts. Remember, when each month’s number is being released we should be looking to see what the revision to last month’s number is too. On Friday we will be getting the first estimate for May and the first revision for April.

Now, how do we even start forecasting how many jobs were created in the US in any given month?! The first thing I would so is study the form. All the data you need is here. You’ll might want to go into Excel and start playing around with the numbers to get an idea of the volatility in the numbers so you can make a guess on in what sort of range this month’s number might lie if nothing changed in the US economy over that month. The sort of changes that you might expect just from the statistical noise.

Then you might want to make a guess as to whether you reckon the US jobs market was improving, deteriorating or remaining about the same. There, you have to use your own intuition and experience. Perhaps look at the number of people who get fired each week in the Initial Claims data. Or search for the word “hiring” in Google Trends – the chart below shows the results after I’ve stripped out the data and smoothed it out a bit to show trends.


Further Reading:

  • Watch out for the ADP nonfarm payroll estimate which gets released two days before the official number each month. Markets to tend to move off it. (ADP Research)
  • A (fairly technical) guide to forecasting nonfarm payrolls (Stone & McCarthy Research Apr’08)


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