Thursday, June 05, 2014

Employment Report Preview for May

by Bill McBride on 6/05/2014 03:17:00 PM

Friday at 8:30 AM ET, the BLS will release the employment report for May. The consensus, according to Bloomberg, is for an increase of 213,000 non-farm payroll jobs in May (range of estimates between 110,000 and 240,000), and for the unemployment rate to increase to 6.4% (a slight bounce back following the sharp decline in April).

Note: The BLS reported 288,000 payroll jobs added in April with the unemployment rate at 6.3%.

Here is a summary of recent data:

• The ADP employment report showed an increase of 179,000 private sector payroll jobs in May. This was below expectations of 210,000 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 below expectations.

• The ISM manufacturing employment index decreased in May to 52.8%. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll jobs decreased about 5,000 in May. The ADP report indicated a 10,000 increase for manufacturing jobs in May.

The ISM non-manufacturing employment index increased in May to 52.4%. A historical correlation between the ISM non-manufacturing employment index and the BLS employment report for non-manufacturing, suggests that private sector BLS non-manufacturing payroll jobs increased about 135,000 in May.

Combined, the ISM surveys suggest about 130,000 payroll jobs added in May (note that the ISM diffusion indexes are based on number of firms, not employees - and the timing is different).

Initial weekly unemployment claims averaged close to 310,000 in May, the lowest level since 2007. However for the BLS reference week (includes the 12th of the month), initial claims were at 327,000; this was up from 305,000 during the reference week in April.

The higher reference week reading suggests some downside to the consensus forecast.

• The final May Reuters / University of Michigan consumer sentiment index decreased to 81.9 from the March reading of 84.1. This is frequently coincident with changes in the labor market, but there are other factors too.

• On small business hiring: The small business index from Intuit showed a 35,000 increase in small business employment in May - the largest gain in more than a year. From Intuit:

"This month's employment increase is the largest we've seen in more than a year. In addition to the impressive increase of jobs this month, the hiring rate is also at the highest level we've seen since early 2009," said Susan Woodward, the economist who works with Intuit to create the indexes.
And from NFIB: NFIB Jobs Statement: Employment Improves a Bit, Raises New Hopes?
“NFIB owners increased employment by an average of 0.11 workers per firm in May (seasonally adjusted), the eighth positive month in a row and the best string of gains since 2006. ... Job creation plans continued to strengthen ..."
• Conclusion: Most of the data was on the downside with the exception of small business hiring. The ADP report was lower in May than in April, and below forecasts.  Weekly unemployment claims were higher during the reference period, and the ISM indexes suggest lower hiring. However the Intuit small business index showed the most hiring in a year.

Also - any bounce back from the severe winter weather probably happened in March and April.

There is always some randomness to the employment report, but the I'll take the under on the consensus forecast of 213,000 nonfarm payrolls jobs added in May.

Final note: A key number will be 113,000 jobs added (including all revisions).  This will put employment above the pre-recession peak.