Wednesday, November 04, 2015

Preview: Employment Report for October

by Bill McBride on 11/04/2015 02:01:00 PM

On Friday at 8:30 AM ET, the BLS will release the employment report for October. The consensus, according to Bloomberg, is for an increase of 190,000 non-farm payroll jobs in October (with a range of estimates between 150,000 to 240,000), and for the unemployment rate to decline to 5.0%.

The BLS reported 142,000 jobs added in September.

Here is a summary of recent data:

• The ADP employment report showed an increase of 182,000 private sector payroll jobs in October. This was close to expectations of 185,000 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 close to expectations.

• The ISM manufacturing employment index decreased in October to 47.6%. 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 30,000 in October. The ADP report indicated a 2,000 decrease for manufacturing jobs.

The ISM non-manufacturing employment index increased in September to 59.2%. 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 320,000 in September.  However, the correlation is weaker when the index is this strong!

Combined, the ISM indexes suggests employment gains of 290,000.  This suggests employment well above expectations.

Initial weekly unemployment claims averaged close to 260,000 in October, down from 271,000 in September. This is the lowest since 1973. For the BLS reference week (includes the 12th of the month), initial claims were at 259,000, down from 264,000 during the reference week in September.

The decrease during the reference suggests a lower level of layoffs in October (or easier to find jobs, so some people don't file for unemployment claims).

• The final October University of Michigan consumer sentiment index increased to 90.0 from the September reading of 87.2. 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 small increase in small business employment in October.  From Intuit: Small Business Employment Remained Stagnant in October

In October, although the overall small business hiring rate increased to 5.3 percent – the highest level since the recession recovery began – net hiring remained stagnant.

“The employment decline in the recent months adds up to a jobs loss of 4,000 since July 2015, a small number compared to the 20.6 million people employed by small businesses, “said Susan Woodward the economist who works with Intuit to produce the indexes. “With a high hiring rate but no net hires, the hiring rate of 5.3 percent is all turnover – firms replacing people who quit or were fired.”

The monthly hours worked by small business employees increased significantly – a total of 45 minutes, to 113.1 hours.

Hours worked is at the highest level we’ve seen since we began reporting this data in 2004, far outside of normal. I expect that businesses will soon hire new people and reduce hours for existing employees, pushing ‘hours worked’ back to its normal level,” Woodward said.
• Trim Tabs reported that the U.S. economy added 178,000 jobs in October, up from their estimate of 149,000 jobs in September. 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.  The ISM non-manufacturing index and unemployment claims suggest an above consensus report.  However Trim Tabs, ADP and Intuit suggests at an or below consensus report.

My guess is the consensus will be close.