by Bill McBride on 8/02/2012 02:00:00 PM
Thursday, August 02, 2012
The last three employment reports were very weak: 68,000 payroll jobs added in April, 77,000 in May, and 80,000 in June. Some of this recent weakness might have been "payback" for the mild weather earlier in the year. Also there is the possibility that the seasonal factors are a little distorted by the deep recession and financial crisis - this is the third year in a row we've some late spring weakness.
Bloomberg is showing the consensus is for an increase of 100,000 payroll jobs in July, and for the unemployment rate to remain unchanged at 8.2%.
Here is a summary of recent data:
• The ADP employment report showed an increase of 163,000 private sector payroll jobs in July. This would seem to suggest that the consensus for the increase in total payroll employment is too low, although the ADP report hasn't been very useful in predicting the BLS report for any one month.
• The ISM manufacturing employment index decreased in July to 52.0%, down from 56.6% in June. A historical correlation between the ISM index and the BLS employment report for manufacturing, suggests that private sector BLS reported payroll jobs for manufacturing decreased about 8,000 in July.
The ISM service index will be released tomorrow after the BLS report.
• Initial weekly unemployment claims averaged about 365,000 in July, down from the 382,000 average for April, May and June. This was about the same level as in March when the BLS reported 143,000 payroll jobs added (Note: weekly claims have apparently been impacted by the timing of auto plant shutdowns).
For the BLS reference week (includes the 12th of the month), initial claims were at 388,000; near the high for the year.
• The final July Reuters / University of Michigan consumer sentiment index declined to 72.3, down from the June reading of 73.2. This is frequently coincident with changes in the labor market, but also strongly related to gasoline prices and other factors. This level - and the slight monthly decline - suggest a weak labor market.
• The small business index from Intuit showed 35,000 payroll jobs added, down from 40,000 in June.
• And on the unemployment rate from Gallup: U.S. Unadjusted Unemployment Rate Increases in July
U.S. unemployment, as measured by Gallup without seasonal adjustment, was 8.2% in July, up slightly from 8.0% in June, but better than the 8.8% from a year ago. Gallup's seasonally adjusted number for July is 8.0%, an increase from 7.8% in June.Note: Gallup only recently has been providing a seasonally adjusted estimate for the unemployment rate, so use with caution (Gallup provides some caveats). Note: So far the Gallup numbers haven't been useful in predicting the BLS unemployment rate.
• Conclusion: The overall feeling is that the economy weakened further in July, and that would seem to suggest another weak employment report. However, if the weather "payback" is over (as several analysts have argued), the number of payroll jobs could be better than the last few months. And it is possible that there have been some seasonal factor distortions.
The ISM manufacturing report suggest a loss of manufacturing jobs, however the ADP report (private only), suggests the consensus is too low. Initial weekly unemployment claims were mixed too: the monthly average was near the low for the year, but the reference week was near the high.
Other negatives include the weak small business numbers from Intuit, and the decline in consumer sentiment.
Overall it seems like the July report will be weaker than expected.
For the economic contest in August: