Economists admit they are increasingly wrong in their estimates of nonfarm payrolls, sometimes by very large margins, contributing to an uptick in volatility in Treasuries as market confusion abounds. The trend is noteworthy because of the impact it has had on Treasuries and note the nonfarm payrolls are closely watched because they are seen as a leading indicator of what action the Federal Reserve will take on interest rates.
The problem is getting worse, too. The average miss year-to-date is 107,000 jobs, while the average miss in 2003 was 89,000 jobs and 42,000 jobs in 2002, according to James O'Sullivan, U.S. economist at UBS.
The surprise in October's nonfarm payroll figures caused a 15 basis point move in 10-year Treasury yields when it was released earlier this month. The report came in at 337,000 jobs, compared to a consensus prediction of 175,000. And the previous month's unexpectedly low figures of 96,000 caused an 18bp yield rally over two days on the 10-years after a consensus figure of 148,000.
"If you look at each year for the last 10 years, [the nonfarm payroll figure] is the single economic statistic that generates the largest intraday volatility in the market," said John Herrmann, Cantor Viewpoint's director of economic commentary. Fluctuating response rates in surveys used by some economists to forecast the payroll figures may have also thrown off estimates, Herrmann noted.
