Wednesday, February 03, 2016

Preview: Employment Report for January

by Bill McBride on 2/03/2016 01:15:00 PM

On Friday at 8:30 AM ET, the BLS will release the employment report for January. The consensus, according to Bloomberg, is for an increase of 188,000 non-farm payroll jobs in January (with a range of estimates between 170,000 to 215,000), and for the unemployment rate to be unchanged at 5.0%.

The BLS reported 292,000 jobs added in December.

Note on Revisions: With the January release, the BLS will introduce revisions to nonfarm payroll employment to reflect the annual benchmark adjustment. The preliminary annual benchmark revision showed a downward adjustment of 208,000 jobs, and the preliminary estimate is usually pretty close.

Here is a summary of recent data:

• The ADP employment report showed an increase of 205,000 private sector payroll jobs in January. This was above expectations of 190,000 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 decreased in January to 45.9%. 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 40,000 in December. The ADP report indicated no change for manufacturing jobs.  Note: Recently the ADP has been a better predictor for BLS reported manufacturing employment than the ISM survey.

The ISM non-manufacturing employment index decreased in December to 52.1%. 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 130,000 in January.

Combined, the ISM indexes suggests employment gains of 90,000.  This suggests employment growth below expectations.

Initial weekly unemployment claims averaged close to 283,000 in January, up from 275,000 in December. For the BLS reference week (includes the 12th of the month), initial claims were at 294,000, up from 271,000 during the reference week in December.

The increase during the reference suggests more layoffs in January as compared to December.

• The final January University of Michigan consumer sentiment index decreased to 92.0 from the December reading of 92.6. Sentiment is frequently coincident with changes in the labor market, but there are other factors too - like lower gasoline prices.

• Conclusion: Unfortunately none of the indicators above is very good at predicting the initial BLS employment report.  However, based on these indicators, it appears job gains will be below consensus.