Wednesday, October 04, 2017

September Employment Preview

by Bill McBride on 10/04/2017 01:58:00 PM

On Friday at 8:30 AM ET, the BLS will release the employment report for September. A key question is how much hurricanes Harvey and Irma impacted employment in September. Merrill Lynch economists noted this morning:

"While Hurricane Irma made landfall on September 10th, preparations and evacuations began well in advance of the storm which likely impacted business and employment activity to start the month. Moreover, many homes and businesses remained without power throughout the week of September 10th (the BLS’s survey reference week) which could also distort the payroll figures. The unemployment rate should not be materially affected as workers who were not at work due to weather issues would still be counted as employed in the household survey."
In September 2005, following Hurricane Katrina in late August of that year, the BLS initially reported 35,000 jobs lost (later revised up to a gain of 67,000 jobs).   That was a sharp slowdown from prior months - and something similar probably happened this year.

Note: Puerto Rico is not included in the national employment report.

The consensus, according to Bloomberg, is for an increase of 100,000 non-farm payroll jobs in September (with a range of estimates between 0 to 140,000), and for the unemployment rate to be unchanged at 4.4%.

The BLS reported 156,000 jobs added in August.

Here is a summary of recent data:

• The ADP employment report showed an increase of 135,000 private sector payroll jobs in September. This was below consensus 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 below expectations.

• The ISM manufacturing employment index increased in September to 60.3%. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll increased about 35,000 in September. The ADP report indicated manufacturing jobs increased 18,000 in September.

The ISM non-manufacturing employment index increased in September to 56.8%. 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 255,000 in September.

Combined, the ISM indexes suggests employment gains of about 290,000.  This suggests employment growth well above expectations.

Initial weekly unemployment claims averaged 278,000 in September,  up sharply from 237,000 in August. For the BLS reference week (includes the 12th of the month), initial claims were at 260,000, up from 232,000 during the reference week in August.

The increase during the reference week suggests  a weaker employment report in September than in August.

• The final September University of Michigan consumer sentiment index decreased to 95.1 from the August reading of 96.8. Sentiment is frequently coincident with changes in the labor market, but there are other factors too like gasoline prices and politics.

• Conclusion: It is difficult to guess the impact of the hurricanes on the employment report.  The ADP report and weekly claims suggest a weaker employment report.  The ISM surveys probably miss the impact of the hurricanes - otherwise those reports would suggest solid employment gains in September.   My guess is the employment report comes in below the consensus forecast.

Note: Any number below 152,000 jobs means the year-over-year gain in employment will fall below 2 million for the first time since early 2013. A negative headline payroll number (not impossible), would break the streak of 83 consecutive months of job gains - by far the longest streak of positive monthly gains in BLS history.