Another forecast for payroll employment

In an earlier post I half-suggested that the employment figures to be released tomorrow could show unexpectedly strong growth, by which I meant a job loss of only about 10,000. Today's ADP employment services report says 169,000 jobs were lost in the private sector, a bit more than expected. This would suggest a much more pessimistic overall jobs report tomorrow. Still, the ADP report continues to suggest that the labor market is stabilizing slowly - job losses fell for the eighth consecutive month.

The consensus forecast for tomorrow's payroll employment number is -130,000, down from -190,000 in October. A 60,000 job improvement every month is consistent with the trend begun in early 2009. If this trend holds, job growth will follow the green line in the graph below. We get positive employment changes in February, and by June the economy is humming along at close to +300,000 per month.

The last two months, however, the improvement in job losses has slowed to an average of +29,000 per month. If that trend continues, we get the red line: job losses continue to April, and even by June we're still at an anemic +42,000 per month. This is the Goldman-Sachs scenario.

I continue to think the green line scenario is the more likely of the two, with a chance that growth will be even stronger.