Thursday, November 03, 2016

October Employment Preview

by Bill McBride on 11/03/2016 03:53:00 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 178,000 non-farm payroll jobs in October (with a range of estimates between 155,000 to 200,000), and for the unemployment rate to decrease to 4.9%.

The BLS reported 156,000 jobs added in September.

Here are a few excerpts from Goldman Sachs' October Payroll Preview by economists Elad Pashtan and Zach Pandl:

We forecast an increase of 185k in nonfarm payroll employment for October, slightly above consensus expectations. An expected rebound in employment growth for state and local governments, as well as education- and health care-related industries, is a key reason for the acceleration from a 156k gain in payrolls in September.

We look for a decline in the unemployment rate to 4.9%, which is now unusually high compared with continuing jobless claims. Favorable calendar effects as well as strengthening underlying wage tends likely boosted average hourly earnings by 0.3% month-over-month.
emphasis added
Here is a summary of recent data:

• The ADP employment report showed an increase of 147,000 private sector payroll jobs in October. This was below expectations of 170,000 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 somewhat below expectations.

• The ISM manufacturing employment index increased in October to 52.9%. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll decreased slightly in October. The ADP report indicated 1,000 manufacturing jobs lost in October.

The ISM non-manufacturing employment index decreased in October to 53.1%. 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 156,000 in October.

Combined, the ISM indexes suggests employment gains of about 155,000.  This suggests employment growth somewhat below expectations.

Initial weekly unemployment claims averaged 258,000 in October, up from 256,000 in September. For the BLS reference week (includes the 12th of the month), initial claims were at 252,000, up from 251,000 during the reference week in August.

The slight increase during the reference suggests about the same level of labor stress in October as in September.  This suggests another positive employment report.

• The final October University of Michigan consumer sentiment index decreased to 87.2 from the September reading of 91.2. Sentiment is frequently coincident with changes in the labor market, but there are other factors too like gasoline prices and possibly politics.

• Conclusion: Unfortunately none of the indicators alone is very good at predicting the initial BLS employment report. The ADP and the ISM reports suggest weaker job growth.  And it is possible Hurricane Matthew negatively impacted employment in a few states.

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