Thursday, May 03, 2018

April Employment Preview

by Bill McBride on 5/03/2018 12:34:00 PM

On Friday at 8:30 AM ET, the BLS will release the employment report for April. The consensus, according to Bloomberg, is for an increase of 191,000 non-farm payroll jobs in April (with a range of estimates between 145,000 to 255,000), and for the unemployment rate to decline to 4.0%.

The BLS reported 103,000 jobs added in March.

Here is a summary of recent data:

• The ADP employment report showed an increase of 204,000 private sector payroll jobs in April. This was above consensus expectations of 193,000 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 slightly above expectations.

However, the ADP report tends to be too low in April. In 2017, the ADP report showed an increase of 177,000 jobs, and the BLS report showed an increase of 211,000 jobs.    In 2016, the ADP report showed an increase of 156,000 jobs, and the BLS report showed 160,000 jobs added.  In 2015, the ADP report showed an increase of 169,000 jobs, and the BLS report showed 223,000. And in 2014, the ADP report showed 220,000 private sector jobs added, and the BLS report showed 288,000 jobs added.

• The ISM manufacturing employment index decreased in April to 54.2%. 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 3,000 in April. The ADP report indicated manufacturing jobs increased 10,000 in April.

The ISM non-manufacturing employment index decreased in April to 53.6%. 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 170,000 in April.

Combined, the ISM indexes suggests employment gains of about 173,000.  This suggests employment growth below expectations.

Initial weekly unemployment claims averaged 222,000 in April, down from 228,000 in March. For the BLS reference week (includes the 12th of the month), initial claims were at 233,000, up from 227,000 during the reference week in March.

The slight increase during the reference week suggests a slightly weaker employment report in April than in March.   (Note: Employment in March was negatively impacted by payback for the nice weather in February.  Excluding the weather impacts, March employment was probably close to 190,000.  So this suggests weaker than March ex-weather).

• The final April University of Michigan consumer sentiment index decreased to 98.8 from the March reading of 101.4. Sentiment is frequently coincident with changes in the labor market, but there are other factors too like gasoline prices and politics.

• Merrill Lynch has introduced a new payrolls tracker based on private internal BAC data. The tracker suggests private payrolls increased by 208,000 in April, and this suggests employment growth slightly above expectations.

• Looking back at the three previous years:

In April 2017, the consensus was for 185,000 jobs, and the BLS reported 211,000 jobs added. In April 2016, the consensus was for 200,000 jobs, and the BLS reported 160,000 jobs added. In April 2015, the consensus was for 220,000 jobs, and the BLS reported 223,000 jobs added.

• Conclusion:  In general, these reports suggest a solid employment report, and probably close to expectations.  The ADP report tends to be lower than the BLS report in April, but the ISM surveys and the reference week for unemployment claims suggests a weaker report.   My guess is that the employment report will be close to the consensus in April.