Thursday, September 05, 2013

Employment Situation Preview

by Bill McBride on 9/05/2013 02:49:00 PM

Tomorrow (Friday), at 8:30 AM ET, the BLS will release the employment report for August. The consensus is for an increase of 175,000 non-farm payroll jobs in August, and for the unemployment rate to be unchanged at 7.4%.

Here is a summary of recent data:

• The ADP employment report showed an increase of 176,000 private sector payroll jobs in August. This was close to expectations of 177,000 private sector payroll jobs added. The ADP report hasn't been very useful in predicting the BLS report for any one month. But in general, this suggests employment growth in line with expectations.

• The ISM manufacturing employment index decreased in August to 53.3% from 54.4% in July. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll jobs were mostly unchanged in August. The ADP report indicated a 5,000 increase for manufacturing jobs in August.

The ISM non-manufacturing employment index increased in August to 57.0% from 53.2% in July. A historical correlation between the ISM non-manufacturing index and the BLS employment report for non-manufacturing, suggests that private sector BLS reported payroll jobs for non-manufacturing increased by about 260,000 in August.

Taken together, these surveys suggest around 260,000 jobs added in August - well above the consensus forecast.

Initial weekly unemployment claims averaged close to 330,000 in August. This was down from an average of 342,000 in July, and at the lowest level since the recession started in December 2007.

For the BLS reference week (includes the 12th of the month), initial claims were at 337,000; about the same as in July.

• The final August Reuters / University of Michigan consumer sentiment index decreased to 82.1 from the July reading of 85.1. This is frequently coincident with changes in the labor market, but also strongly related to gasoline prices and other factors.

• The small business index from Intuit showed a slight decrease in small business employment in August.

• And on the unemployment rate from Gallup: Gallup's seasonally adjusted U.S. unemployment rate for August was 8.6%, up from 7.4% in July

Gallup's unadjusted unemployment rate for the U.S. workforce was 8.7% in August, up from 7.8% in July and from 8.1% in August 2012. Similar to P2P, unemployment fluctuates seasonally, and the year-over-year change is the most informative comparison. The uptick in unemployment this August compared with August of last year is the first year-over-year increase since Gallup was able to begin tracking yearly changes in 2011.

Gallup's seasonally adjusted U.S. unemployment rate for August was 8.6%, up from 7.4% in July. Gallup calculates this rate by applying the adjustment factor the government used for the same month in the previous year. Last year, the government adjusted August's rate down by 0.1 points, but adjusted July's down by 0.4 points, which partly accounts for the increase in seasonally adjusted unemployment.
Oh my, 8.6%?  I have very little confidence in the Gallup survey as far as predicting the BLS reported unemployment rate, and I will probably stop looking at their results going forward (unless the unemployment rate increases significantly in August!).

• Conclusion: The data was mixed. The ADP report was a little lower in August than in July, however the ISM surveys suggest a significant increase in hiring. Weekly claims for the reference week were about the same in August as in July, and consumer sentiment decreased slightly.

There is always some randomness to the employment report - and there are reasons for optimism (ISM surveys, decline in unemployment claims) so maybe we will see an upside surprise - but my guess is the BLS will report close to the consensus of 175,000 jobs added in August.  It will be important to look at payroll revisions and the unemployment rate (the Gallup number seems way off).  This is an especially important report because this is the last major data point before the September FOMC meeting.

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