A below-trend reading for nonfarm payroll employment growth to come? - Nomura

Analysts at Nomura explained that while they forecast a below-trend reading for nonfarm payroll employment growth, they still expect manufacturing employment to increase steadily. 

Key Quotes:

"Regional manufacturing surveys in September were largely unaffected by the storms. Moreover, manufacturing as a percent of total employment in Houston (8.8%) and Florida (4.9%) is below the national average of 10.0%. Finally, the combined manufacturing employment of both areas is only 4.8% of total manufacturing employment in the US. Thus, we believe the impact on manufacturing employment will be more muted.

Average hourly earnings We expect average hourly earnings to increase by a strong 0.4% m-o-m in September, bringing the y-o-y rate to 2.61%. However, this above-average forecast arises from two idiosyncratic factors. First, we expect a 9bp increase due to a calendar quirk depending on where the survey week falls in September relative to the first day of the month. Second, aggregate hours are more sensitive than earnings to inclement weather. For this reason, we expect some transitory weakness in September’s aggregate hours, adding an additional small boost to average hourly earnings. Despite an expected above-average increase in September, we continue to expect wage growth to remain sluggish in the medium term. One reason for our wage growth pessimism is that wage growth is likely being held down by structural factors, including decreased business dynamism.

One feature we would note is the widespread weakness in wage growth across industries. For production and nonsupervisory workers, AHE has grown 2.3% y-o-y through August compared to 4.1% in May 2007 when the unemployment rate was also 4.4%. For most industries, the 2017 performance for these workers in AHE is far below that of 2007."