by Bill McBride on 7/02/2014 02:01:00 PM
Wednesday, July 02, 2014
Thursday at 8:30 AM ET, the BLS will release the employment report for June. The consensus, according to Bloomberg, is for an increase of 211,000 non-farm payroll jobs in June (range of estimates between 199,000 and 290,000), and for the unemployment rate to be unchanged at 6.3%.
Note: The BLS reported 217,000 payroll jobs added in May with the unemployment rate at 6.3%.
Here is a summary of recent data:
• The ADP employment report showed an increase of 281,000 private sector payroll jobs in June. This was above 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 above expectations.
• The ISM manufacturing employment index was unchanged in June at 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 June. The ADP report indicated a 12,000 increase for manufacturing jobs in June.
The ISM non-manufacturing employment index for June will be released tomorrow (after the employment report is released).
• Initial weekly unemployment claims averaged close to 314,000 in June, up slightly from May. For the BLS reference week (includes the 12th of the month), initial claims were at 314,000; this was down from 327,000 during the reference week in May.
The lower reference week reading suggests some upside to the consensus forecast.
• The final June Reuters / University of Michigan consumer sentiment index increased slightly to 82.5 from the May reading of 81.9. 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 20,000 increase in small business employment in June. From Intuit:
U.S. small business employment grew for the fourth consecutive month in June, adding 20,000 jobs. While the labor market continues to show signs of revival, small business employment remains 900,000 workers shy of the peak reached in March of 2007.• A few comments from Goldman Sachs economist Kris Dawsey:
"This month's employment data makes for the fourth consecutive month of small business job growth after a flat job market early in 2014. While employment growth continued this month, changes for compensation and hours worked were mixed but very small. This indicates that while the employment picture has improved, there is little pressure on wages or hours," said Susan Woodward, the economist who works with Intuit to create the indexes.
"The revenue figures for small businesses are better than they have been in some years – they were up in April, and are up even more in May. The rise in revenues for all businesses is about three-fourths of one percent, which is a lot, and if it continued for a year, would give us an increase of 10 percent."
We forecast a 210k increase in June payroll employment, just a bit less than the consensus expectation of 215k. On the one hand, ADP, initial claims, the labor differential, and the employment components of service sector surveys argue for a stronger report. On the other hand, consensus tends to be a bit too optimistic on June payrolls, and the "weather bounce-back" in employment after this winter's slowdown could be losing some steam.• Conclusion: Most of the data was fairly positive in June with the exception of small business hiring. The ADP report was higher in June than in May, and well above forecasts, and weekly unemployment claims were lower during the reference period. However the Intuit small business index showed somewhat less hiring in June.
Labor differential heading north. The Conference Board's labor differential―the net percent of respondents in the consumer confidence survey describing jobs as plentiful vs. hard to get―improved by 0.9pt in June to -17.1.
Last year the consensus was for 161,000 payroll jobs added in June, and the BLS reported 195,000 jobs added (since revised up to 201,000). In June 2012, the consensus was for 90,000 payroll jobs added, and the BLS reported 80,000 jobs added (revised up to 88,000).
There is always some randomness to the employment report, but the I'll take the over on the consensus forecast of 211,000 nonfarm payrolls jobs added in June. Note: This might be "wishcasting" (as opposed to forecasting) because 222,000 would put the year-over-year increase at a nice round 2.4 million or 200,000 per month.