Wednesday, June 03, 2015

Preview: Employment Report for May

by Bill McBride on 6/03/2015 03:15:00 PM

Another month, another employment report ...

On 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 220,000 non-farm payroll jobs in May (with a range of estimates between 190,000 and 289,000), and for the unemployment rate to be unchanged at 5.4%.

The BLS reported 223,000 jobs added in April.

Here is a summary of recent data:

• The ADP employment report showed an increase of 201,000 private sector payroll jobs in May. This was at expectations of 200,000 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 at expectations.

• The ISM manufacturing employment index increased in May to 51.7%. 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 10,000 in May. The ADP report indicated a 5,000 decrease for manufacturing jobs.

The ISM non-manufacturing employment index decreased in May to 56.7%. 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 215,000 in May.

Combined, the ISM indexes suggests employment gains of 205,000.  This suggests employment growth slightly below expectations.

Initial weekly unemployment claims averaged close to 271,000 in May, down from 284,000 in April - and the lowest monthly average since early 2001. For the BLS reference week (includes the 12th of the month), initial claims were at 275,000; down from 296,000 during the reference week in April.

This suggests a lower level of layoffs in May compared to the previous months.

• The final May University of Michigan consumer sentiment index decreased to 90.0 from the April reading of 95.9. Sentiment is frequently coincident with changes in the labor market, but there are other factors too - like gasoline prices.

• On small business hiring: The small business index from Intuit showed a 25,000 increase in small business employment in May, up from 15,000 in March.  From Intuit: Small Businesses Employment Shows Sharp Growth in May

Small business employment rose by 25,000 jobs in May, an increase of 0.13 percent, or an annual rate of 1.6 percent. The hiring rate also continued to rise, showing the fastest increase since the hiring rate began growing for small businesses in July 2009. Hourly employees worked an average of 41 minutes longer than in April.

“Looking back to January 2004, we see only seven months when the change in hours worked was larger than 25 minutes. This is a sign that small businesses are working hard to meet increased demands – and get work done,” said Susan Woodward, the economist who works with Intuit to produce the Small Business Employment and Revenue Indexes.

“Another sign of stronger small business activity is the hiring rate, which rose at nearly twice the rate of any other month since beginning to rise in September 2009. The hiring rate always exceeds the employment increase because hiring reflects replacing workers who leave, as well as added workers,” Woodward said
• Trim Tabs reported that the U.S. economy added 273,000 jobs in May. From  TrimTabs:
TrimTabs Investment Research estimates that the U.S. economy added 273,000 jobs in May, the eleventh consecutive month that employment growth exceeded 200,000 jobs.

“While the Bureau of Economic Analysis’ latest GDP growth estimate has Wall Street worried about a slowdown, our figures paint a different picture,” said David Santschi, chief executive officer of TrimTabs. “Real-time tax data indicates employment growth remains solid.”

TrimTabs’ employment estimates are based on analysis of daily income tax deposits to the U.S. Treasury from the paychecks of the 141 million U.S. workers subject to withholding.
• Conclusion: Unfortunately none of the indicators above is very good at predicting the initial BLS employment report. However it looks like this should be another 200+ month (based on ADP, ISM, unemployment claims, and small business hiring). There is always some randomness to the employment report, but my guess is something close to the consensus this month.