The July jobs report looms, and some see a (happy) shock

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Two big Wall Street banks are telling clients to be ready for a pleasant surprise in the government’s July employment report Friday.

Joe LaVorgna, chief U.S. economist at Deutsche Bank Securities, this week slashed his estimate of net job losses for the month to 150,000 from 325,000.

Goldman Sachs & Co. economists today lowered their estimate to a loss of 250,000 jobs from a previous estimate of 300,000.

LaVorgna knows he is going way out on a limb: His estimate now is by far the lowest of 82 economists surveyed by Bloomberg News. The average is a loss of 325,000 jobs, down from the 467,000 jobs cut in June.

LaVorgna says he’s basing his forecast largely on the recent decline in new claims for unemployment benefits. Claims dropped to 550,000 last week, down from 588,000 the previous week. The number has been falling, albeit erratically, from a peak of 674,000 in the last week of March.

Coupled with an upturn in new orders reported in factory-production surveys (including the Institute for Supply Management’s July report), the slide in claims suggests that employment data are ‘poised for a signficant improvement . . . possibly soon enough to show up in the July employment report,’ LaVorgna said in a note to clients.

Goldman economists also cited the drop in benefits claims for their better outlook for July payroll data.

‘Incoming information on the labor market has been a mixed bag, but in our view points towards a slightly better outcome than our first estimate made about two weeks ago, they said in a note. ‘In particular, information on jobless claims suggests -- even after correcting for seasonal distortions related to the timing of auto sector plant shutdowns -- some improvement in the state of the labor market.’

Economists overall were way too optimistic on the June employment report: The average estimate was for a loss of 350,000 jobs; the figure came in at 467,000.

The magnitude of that miss may be keeping some forecasters from reducing their July estimates, despite some better-than-expected (i.e., less-bad) data on the economy in recent weeks.

-- Tom Petruno