Thursday, July 07, 2016

Preview of June Employment Report

by Bill McBride on 7/07/2016 02:11:00 PM

On Friday at 8:30 AM ET, the BLS will release the employment report for June. The consensus, according to Bloomberg, is for an increase of 180,000 non-farm payroll jobs in June (with a range of estimates between 135,000 to 233,000, and for the unemployment rate to increase to 4.8%.

The BLS reported 38,000 jobs added in May.

Verizon Strike Note: See my earlier post. The resolution of the strike will increase the NFP total by about 35,100 jobs in June. These jobs were lost in May, but are now back.

Here is a summary of recent data:

• The ADP employment report showed an increase of 172,000 private sector payroll jobs in June. This was above expectations of 150,000 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 increased in June to 50.4%. 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 17,000 in June. The ADP report indicated 21,000 fewer manufacturing jobs.

The ISM non-manufacturing employment index increased in June to 52.7%. 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 145,000 in June.

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

Initial weekly unemployment claims averaged 265,000 in June, down from 276,000 in May. For the BLS reference week (includes the 12th of the month), initial claims were at 258,000, down from 278,000 during the reference week in May.

The decrease during the reference suggests fewer layoffs in June as compared to May, however some of the change might be due to the resolution of the Verizon strike.

• The final June University of Michigan consumer sentiment index decreased to 93.5 from the May reading of 94.7. 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 alone is very good at predicting the initial BLS employment report.    The ADP report and unemployment claims suggest stronger job growth. The ISM reports suggests stronger job growth than in May, but a below consensus report.

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