Thursday, November 02, 2017

October Employment Preview

by Bill McBride on 11/02/2017 10:00:00 AM

On Friday at 8:30 AM ET, the BLS will release the employment report for October. A key question is how much did hurricanes Harvey and Irma impact employment in September - and how much will employment bounce back in October. Merrill Lynch economists expect the following:

We forecast that nonfarm payrolls increased by 350k in October fully reversing the decline owing to hurricanes in September. We look for the unemployment rate to edge back up to 4.3% after an unexpected drop in September. On wages, we expect average hourly earnings to increase by 0.3% mom bringing the year over year rate to 2.8%.
The consensus, according to Bloomberg, is for an increase of 325,000 non-farm payroll jobs in October (with a range of estimates between 200,000 to 371,000), and for the unemployment rate to be unchanged at 4.2%.

The BLS reported 33,000 jobs lost in October.

Here is a summary of recent data:

• The ADP employment report showed an increase of 235,000 private sector payroll jobs in October. This was above consensus expectations of 210,000 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 or above expectations.

• The ISM manufacturing employment index decreased in October to 59.8%%. 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 October. The ADP report indicated manufacturing jobs increased 22,000 in October.

The ISM non-manufacturing employment index for October has not been released yet.

Initial weekly unemployment claims averaged 232,500 in October,  down sharply from 267,000 in September. For the BLS reference week (includes the 12th of the month), initial claims were at 223,000, down from 260,000 during the reference week in September.

The decrease during the reference week suggests a much stronger employment report in October than in September.

• The final October University of Michigan consumer sentiment index increased to 100.7 from the September reading of 95.1. Sentiment is frequently coincident with changes in the labor market, but there are other factors too like gasoline prices and politics.

• Conclusion:  The ADP report and weekly claims suggest a strong employment report.   My guess is the employment report is strong (well over 200,000), but might fall short of the consensus.

Note: The revisions to October will be interesting. In September 2005, after hurricane Katrina, the BLS initially reported 35,000 jobs lost (that was later revised up to a gain of 67,000 jobs). As I noted in The Record Job Streak: A couple of Comments, the record job streak might still be ongoing, if employment in October is revised up enough.