Thursday, September 06, 2012

Employment Situation Preview

by Bill McBride on 9/06/2012 12:42:00 PM

In July, the BLS reported there were 163,000 payroll jobs added. This followed three weak months: 68,000 payroll jobs were added in April, 87,000 in May, and 64,000 in June. Some of the spring weakness might have been "payback" for the mild weather earlier in the year, so it might help to look at the average per month. So far this year, the economy has added 151,000 payroll jobs per month (161,000 private sector per month).

Also, there is a strong 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. In 2010, payrolls picked up in October following a weak period (looking at the data ex-Census), in 2011, payrolls picked up in September. If there is a seasonal distortion, the next four months will probably see some increase too.

Bloomberg is showing the consensus is for an increase of 125,000 payroll jobs in August, and for the unemployment rate to remain unchanged at 8.3%.

Here is a summary of recent data:

• The ADP employment report showed an increase of 201,000 private sector payroll jobs in August. This is the strongest ADP report since March, and this would seem to suggest that the consensus for the increase in total payroll employment is too low. However the ADP report hasn't been very useful in predicting the BLS report for any one month.

• The ISM manufacturing employment index decreased in August to 51.6%, down from 52.0% in July. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS reported payroll jobs for manufacturing decreased about 12,000 in August.

The ISM non-manufacturing (service) employment index increased in August to 53.8%, up from 49.3% in July. A historical correlation between the ISM non-manufacturing employment index and the BLS employment report for services, suggests that private sector BLS reported payroll jobs for services increased about 160,000 in August.

Added together, the ISM reports suggests about 148,000 jobs added in August.

Initial weekly unemployment claims averaged about 371,000 in August, up from the 366,000 average for July - but below the 382,000 average for April, May and June. This was about the same level as in the January, February and March period when the BLS reported an average of 226,000 payroll jobs added per month.

For the BLS reference week (includes the 12th of the month), initial claims were at 374,000; down from 388,000 during the reference week in July.

• The final July Reuters / University of Michigan consumer sentiment index increased to 74.3, up from the July reading of 72.3. This is frequently coincident with changes in the labor market, but also strongly related to gasoline prices and other factors. This level still suggests a weak labor market.

• The small business index from Intuit showed 30,000 payroll jobs added, down from 45,000 in July.

• And on the unemployment rate from Gallup: U.S. Unadjusted Unemployment Rate at 8.1% in August

U.S. unemployment, as measured by Gallup without seasonal adjustment, is 8.1% for the month of August, down slightly from 8.3% measured in mid-August and 8.2% for the month of July. Gallup's seasonally adjusted unemployment rate for August is also 8.1%, a slight uptick from 8.0% at the end of July.
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 economic activity picked up a little in August, and that would seem to suggest a stronger than consensus employment report. Also it is possible that there have been some seasonal factor distortions.

The ISM manufacturing reports suggest a gain of around 148,000 payroll jobs, and the ADP report (private only), also suggests the consensus is too low. Initial weekly unemployment claims were near the low for the year during August.

A negative is the weak small business numbers from Intuit.

Overall it seems like the August report will be somewhat stronger than expected.