Wednesday, May 04, 2016

Preview of April Employment Report

by Bill McBride on 5/04/2016 01:21:00 PM

On Friday at 8:30 AM ET, the BLS will release the employment report for April. The consensus, according to Bloomberg, is for an increase of 200,000 non-farm payroll jobs in April (with a range of estimates between 175,000 to 245,000, and for the unemployment rate to decline to 4.9%.

The BLS reported 215,000 jobs added in March.

Here is a summary of recent data:

• The ADP employment report showed an increase of 156,000 private sector payroll jobs in April. This was below expectations of 193,000 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.

However, the ADP report tends to be too low in April. In 2015, the ADP report showed an increase of 169,000 jobs, and the BLS report showed 223,000. And in 2014, the ADP report showed 220,000 private sector jobs added, and the BLS report showed 288,000 jobs added.

• The ISM manufacturing employment index increased in April to 49.2%. 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 25,000 in April. The ADP report indicated 13,000 fewer 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 increased in April to 53.0%. 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 155,000 in April.

Combined, the ISM indexes suggests employment gains of 130,000.  This suggests employment growth below expectations.

Initial weekly unemployment claims averaged 256,000 in April, down from 263,000 in March, and the lowest 4-week average since 1973. For the BLS reference week (includes the 12th of the month), initial claims were at 247,000, down from 259,000 during the reference week in March.

The decrease during the reference suggests fewer layoffs in April as compared to March.

• The final April University of Michigan consumer sentiment index decreased to 89.0 from the March reading of 91.0. Sentiment is frequently coincident with changes in the labor market, but there are other factors too - like gasoline prices.

• Conclusion: Unfortunately none of the indicators above is very good at predicting the initial BLS employment report.    The ADP and ISM reports suggest a weaker than consensus report, although unemployment claims suggest stronger job growth.  However, as I noted above, the ADP report tends to be low in April.

My guess the employment report will be below consensus in April.