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Jobs Outlook Starts Improving, Fueling Bullishness on Stocks

As stocks steam higher, expectations for a much improved March jobs report has become an increasingly important part of the picture.

Some strategists have said the report needs to show a fair amount of job growth—100,000 plus—to keep the rally going. But economists have been crunching their forecasts and the consensus estimate is creeping higher, to a level of job growth closer to 200,000 non-farm payrolls. Several are forecasting 300,000 or more.

Wall Street
Wall Street

Job growth has been painfully lacking so far in this recovery, so each weekly claims report and monthly jobs report has been highly anticipated by the market. The creation of jobs is also being watched as a potential trigger for the Fed's move away from its super easy money policy.

BlackRock vice chairman Bob Doll has said he expects more than 100,000 jobs in the April 2 report and on Tuesday, he said positive jobs news would be fuel for the rally.

"Not that we don't have our problems, but there are more positives than negatives, and I think job growth...is right around the corner, and I think that will be the confirming sign for this rally," Doll said this week on CNBC.

The range of forecasts from economists spans negative numbers to Deutsche Bank's estimate of 350,000 non farm payrolls. Two important variables separate the forecasts. One is the amount of job activity that economists believe was held back by February's winter storms and is now showing up in March. The other is the government's massive hiring of 1.2 million temporary workers for the U.S. census.

Mark Zandi, chief economist at Moody's Economy.com, said his preliminary forecast is for 175,000 non farm payrolls for March. Of that, he expects 50,000 is the result of weather; 100,000 is from census hiring, and only 25,000 is from underlying job growth.

"Some people think the weather effects are larger and the census could be higher too. That's very difficult to gauge," said Zandi. "I don't know how people get to higher underlying growth. I don't know what it's based on." Zandi said he won't calculate a final estimate until he sees weekly jobless claims and the job component in the ISM manufacturing survey next week.

laid off
laid off

RBS economist Omair Sharif said his firm expects job growth of 240,000 in March. "We were thinking weather added 50,000 to 75,000. People are factoring in at least 125,000 census," he said.

Economists said the census workers will peak in May but start to go away and become a negative number in June. They are using the experience of the survey in the year 2000 to estimate the payrolls impact.

Citigroup economists said they did not publish a March payrolls forecast yet, but they provided their expectations for census hiring. In March, they expect 131,000 census jobs and 109,000 in April.

They expect hirings to peak at 500,000 in May, but the census contribution turns to negative 107,000 in June. July is basically flat, but there are larger negative numbers in August and September for a total loss of more than 600,000 in those two months.

"The BLS is doing a good job of telling us how many jobs are being created. We'll all strip it out pretty fast. The investors will be focused on the net after census," said Zandi.

February's job losses amounted to 36,000, less than expected, and the unemployment rate held steady at 9.7 percent. The census contributed 39,000 jobs in February.

Weekly jobless claims last week fell by 5,000 to 462,000, but hang stubbornly in the mid to upper 400,000 range. The four-week average fell by 4,250 to 471,250, still 5.8 percent higher than the end of 2009.

"At this point, the claims, both initial and emergency and extended benefits are still very elevated with no sign of coming down," said Zandi. But he said the March report is important even if not as robust as some expect.

"I think this is the first real month of job growth, and that's notable," he said. "The policy makers are all talking about it...The next few months will be strong. March, April, and May will be very strong. June will be the first soft month, and July, August and September will be the test.

Deutsche Bank's chief U.S. economist Joseph LaVorgna has the high estimate on the street currently, and he thinks the weather could have resulted in 150,000 to 160,000 workers in March, and the census was responsible for 70,000. "We're going to know immediately what the census affect was," he said, adding it will be apparent in the employment report.

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