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Nonfarm Payrolls Are Expected to Increase

Private nonfarm payrolls in the US are projected to increase by 193,000 (seasonally adjusted) in tomorrow’s November report from the Labor Department.

 

By James Picerno

This is based on The Capital Spectator’s average point forecast for several econometric estimates. The prediction marks a healthy gain, albeit one that’s substantially below October’s surprisingly strong increase.

Two estimates based on recent surveys of economists point to a slightly lesser gain for private payrolls in November relative to The Capital Spectator’s average projection.

Here’s a review of the numbers, followed by brief summaries of the methodologies behind the forecasts that are used to calculate The Capital Spectator’s average prediction:

uspriv.03dec2015

ARIMA: An autoregressive integrated moving average model that analyzes the historical record of private payrolls in R via the “forecast” package.

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ES: An exponential smoothing model that analyzes the historical record of private payrolls in R via the “forecast” package.

R-1: A linear regression model that analyzes the historical record of ADP private payrolls in context with the Labor Department’s estimate of US private payrolls. The historical relationship between the variables is applied to the more recently updated ADP data to project the government’s estimate of private payrolls. The computations are run in R.

VAR-6: A vector autoregression model that analyzes six economic time series in context with private payrolls. The six additional series: ISM Manufacturing Index, industrial production, aggregate weekly hours of production and nonsupervisory employees in the private sector, the stock market (Wilshire 5000), spot oil prices, and the Treasury yield spread (10-year less 3-month T-bill). The forecasts are run in R with the “vars” package.

TRI: A model that’s based on combining point forecasts, along with the upper and lower prediction intervals (at the 95% confidence level), via a technique known astriangular distributions. The basic procedure: 1) run a Monte Carlo simulation on the combined forecasts and generate 1 million data points on each forecast series to estimate a triangular distribution; 2) take random samples from each of the simulated data sets and use the expected value with the highest frequency as the prediction. The forecast combinations are drawn from the following projections: Econoday.com’s consensus forecast data and the predictions generated by the models above. The forecasts are run in R with the “triangle” package.