Thursday, January 31, 2013

Employment Situation Preview

by Bill McBride on 1/31/2013 11:28:00 AM

On Friday, at 8:30 AM ET, the BLS will release the employment report for January. The consensus is for an increase of 185,000 non-farm payroll jobs in January, up from the 155,000 jobs added in December. The consensus is for the unemployment rate to decline to 7.7% from 7.8% last month.

Here is a summary of recent data:

• The ADP employment report showed an increase of 198,000 private sector payroll jobs in January. This was above expectations. The ADP report hasn't been very useful in predicting the BLS report for any one month, although the methodology changed recently. In general this suggests employment growth in line or above expectations.

• The ISM manufacturing and non-manufacturing (service) indexes for January will not be released until after the employment report.  However the Chicago PMI employment index increased sharply in January to 58.0 from 46.8 in December (above 50 is expansion) and this might suggest some upside for employment.

Initial weekly unemployment claims averaged about 351,000 in January. This is the lowest level for unemployment claims since early 2008.

For the BLS reference week (includes the 12th of the month), initial claims were at 335,000; the lowest for a reference week since January 2008.  This is positive for employment.

• The preliminary January Reuters / University of Michigan consumer sentiment index declined to 71.3, down from the December reading of 72.9. This is frequently coincident with changes in the labor market, stock market, gasoline prices and other factors such as budget uncertainty. This might suggest some decrease in employment, but I think the recent declines were related to budget threats.

• The January small business index from Intuit showed 20,000 payroll jobs added, the same number as in December. This is still very low.

• And on the unemployment rate from Gallup: Gallup finds seasonally unadjusted unemployment unchanged at 7.8%

Gallup's unadjusted unemployment rate for the U.S. workforce was 7.8% for the month of January, statistically unchanged from 7.7% at the end of December, but down from 8.6% a year ago. Gallup's seasonally adjusted unemployment rate for January was 7.3%, a 0.6-percentage-point decline from 7.9% in December.
Note: Gallup only recently has been providing a seasonally adjusted estimate for the unemployment rate, so use with caution. So far the Gallup numbers haven't been very useful in predicting the BLS unemployment rate, but this does suggest a decrease in the unemployment rate in January.

• Conclusion: Most of the employment related data was stronger in January than in December (or most of last year).  There is always some randomness to the employment report - and there are large seasonal factors for January - but I'd take the over on the headline payroll jobs number.

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