This article presents the Trader Edge aggregate neural network model forecast for the August 2013 non-farm payroll data, which will be released tomorrow morning.
Non-Farm Payroll (NFP) Model Forecast - August 2013
The table in Figure 1 below includes the monthly non-farm payroll data for two months: July and August 2013. The July data was released last month and the non-farm payroll data for August 2013 will be released tomorrow morning at 8:30 AM EDT.
The model forecasts are in the third data row of the table (in blue). Note that past and current forecasts reflect the latest values of the independent variables, which means that forecasts will change when revisions are made to the historical economic data.
The monthly standard error of the model is approximately 79,200 jobs. The first and last data rows of the table report the forecast plus 0.5 standard errors (in green) and the forecast minus 0.5 standard errors (in red), respectively. All values are rounded to the nearest thousand. If the model errors were normally distributed, roughly 31% of the observations would fall below -0.5 standard errors and another 31% of the observations would exceed +0.5 standard errors.
The actual non-farm payroll release for July 2013 is in the second data row of the table (in purple). The consensus estimate (reported by Briefing.com) for August 2013 is also in the second data row of the table (in purple). The reported and consensus NFP values also include the deviation from the forecast NFP (as a multiple of the standard error of the estimate). Finally, the last column of the table includes the estimated changes from July to August 2013.
The aggregate model forecast for August is 171,000, which is down 29,000 jobs from last month's revised forecast of 200,000. The Briefing.com consensus estimate for July is 177,000, which is 15,000 higher than the June NFP release. The actual July data was materially below the July forecast (-0.48 S.E.), but the model forecast for August is very close to the Briefing.com consensus estimate. If the model forecast for August were accurate, the market response would be minimal. However, the larger error last month (Forecast above Reported) raises the possibility of a positive revision.
The February 2013 NFP data (the large, one-month spike above 300,000 in Figure 2 below) was clearly an anomaly. The NFP data had been trending lower since late last year, but has stabilized over the past few months.
Basic forecasting tools can help you identify unusual consensus economic estimates, which often lead to substantial surprises and market movements. Identifying such environments may help you protect your portfolio from these corrections and help you determine the optimal entry and exit points for your strategies.
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