Thursday, August 06, 2015

Preview: Employment Report for July

by Bill McBride on 8/06/2015 12:14:00 PM

On Friday at 8:30 AM ET, the BLS will release the employment report for July. The consensus, according to Bloomberg, is for an increase of 212,000 non-farm payroll jobs in July (with a range of estimates between 210,000 to 262,000), and for the unemployment rate to be unchanged at 5.3%.

The BLS reported 223,000 jobs added in June.

Here is a summary of recent data:

• The ADP employment report showed an increase of 185,000 private sector payroll jobs in July. 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 July to 52.7%. 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 5,000 in July. The ADP report indicated a 2,000 increase for manufacturing jobs.

The ISM non-manufacturing employment index increased in July to 59.6%. 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 330,000 in July. This employment reading was unusually strong, and the correlation might not be as useful.

Combined, the ISM indexes suggests employment gains of 325,000.  This suggests employment growth well above expectations.

Initial weekly unemployment claims averaged close to 275,000 in July, about the same as in June. For the BLS reference week (includes the 12th of the month), initial claims were at 255,000; down from 268,000 during the reference week in June.

This suggests a lower level of layoffs in July.

• The final July University of Michigan consumer sentiment index decreased to 93.1 from the June reading of 96.1. 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 10,000 increase in small business employment in July, lower than in June.  From Intuit: Small Businesses Employment Increases in June

Small business employment rose by 10,000 jobs in July, an annual rate of 0.5 percent. However, Susan Woodward, the economist who works with Intuit to produce the indexes, said this is slower than the growth rate of 1.0 percent over the past year.

“Small business employment is still 2.3 percent below its pre-recession peak,” said Woodward. “The continued low level of construction employment, which is 17.5 percent below the pre-recession peak in mid-2006, accounts for the slow rate of small business recovery.

“A sign of continuing recovery in small business activity is the hiring rate, which has risen slowly but steadily since July 2009. An increase in the hiring rate reflects improved opportunities for workers,” Woodward said.
• Trim Tabs reported that the U.S. economy added 268,000 jobs in July. Note: "TrimTabs’ employment estimates are based on analysis of daily income tax deposits to the U.S. Treasury from the paychecks of the 142 million U.S. workers subject to withholding."

• Conclusion: Unfortunately none of the indicators above is very good at predicting the initial BLS employment report.  And the data was mixed.

There were several weaker indicators such the ADP report, ISM manufacturing, and small business hiring.

The ISM non-manufacturing, TrimTabs, and the low level of unemployment claims for the BLS reference week, all suggest a stronger report.

Historically the initial report for July tends to be weak, and I'll take the under on the consensus this month.