The jobs report could stink because of 35,000 people (VZ)

Shannon Stapleton/ReutersDemonstrators outside a Verizon wireless store during a strike in New York.

Friday’s jobs report would be better if Verizon workers were not on strike.

Economists forecast that nonfarm payrolls grew by 160,000 in May, unchanged from the prior month, according to Bloomberg.

But they think the job gains could have been higher.

Nearly 40,000 Verizon workers walked off the job after contract negotiations fell apart; unions had been in talks with the company about plans to cut benefits over a three-year period.

They announced a deal on Monday that could end the seven-week strike.

But the dent to the jobs report has already happened. The strike was on during the reference period for the establishment survey, which usually includes the 12th day of the month.

Here’s Barclays’ Jesse Hurwitz, writing in a recent client note (emphasis ours):

As we had expected, the Verizon worker strike that began on April 13 and continued through the May reference week will likely depress monthly nonfarm payroll growth in next Friday’s report. The magnitude of the BLS strike estimate is in line with media reports and our expectations (30-40k) and bolsters our confidence that information sector payrolls will register a sharp temporary decline in May. Specifically, we expect the gross strike effect to show up in the Labor Department’s estimate of wired telecommunications carriers employment (NAICS code 5171), which is a subcomponent of information payroll employment.

Hurwitz noted that even though there were 35,100 workers on strike, there may not be a one-to-one net effect on the headline payrolls gain. That’s because when Verizon workers went on strike in August 2011, much of the drop in telecomms payrolls was offset by a rise in the temporary workers the company hired.

“It is difficult to estimate the degree of an offset from Verizon’s temporary hiring given the lack of hard data, but we do not expect that the company has been able to offset as large a share of its striking workforce as in 2011,” he said. His forecast for job gains is below consensus, at 150,000.

Previous episodes like this show that the Verizon strike could also affect average hourly earnings and hours worked, Deutsche Bank’s Joseph LaVorgna said in a recent note. That didn’t cause them to change their forecasts for either.