Thursday, June 02, 2016

Preview of May Employment Report

by Bill McBride on 6/02/2016 03:56:00 PM

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 158,000 non-farm payroll jobs in May (with a range of estimates between 110,000 to 219,000, and for the unemployment rate to decline to 4.9%.

The BLS reported 160,000 jobs added in April.

Verizon Strike Note: See my previous post, but it appears the strike will reduce the NFP total by about 40,000 jobs in May.  Since the strike has been settled, these jobs will be added back in June.

Here is a summary of recent data:

• The ADP employment report showed an increase of 173,000 private sector payroll jobs in May. This was close to expectations of 175,000 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 was unchanged in May at 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 May. The ADP report indicated 3,000 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 for May will be released tomorrow.

Initial weekly unemployment claims averaged 276,000 in May, up from 256,000 in April, and the lowest 4-week average since 1973. For the BLS reference week (includes the 12th of the month), initial claims were at 278,000, up from 247,000 during the reference week in April.

The increase during the reference suggests more layoffs in May as compared to April, however some of the increase is probably due to the Verizon strike.

• The final May University of Michigan consumer sentiment index increased to 94.7 from the April reading of 89.0. 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 report suggest a consensus report, and unemployment claims suggest weaker job growth.

My guess is the May report will be below the consensus forecast.