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Saturday, June 26, 2010

Employment Report Preview

by Calculated Risk on 6/26/2010 06:26:00 PM

Just a few notes on the June employment report to be released on Friday, July 2nd:

  • The consensus is for a headline number of -100,000 jobs and for the unemployment rate to increase slightly to 9.8%.

  • However a large portion of the decrease in June payroll jobs is because of the decennial Census. This will probably reduce the headline number by -240,000 to -250,000 payroll jobs (my estimate is for the Census to subtract 243,000 payroll jobs in June).

  • So the consensus is for the addition of 150,000 payroll jobs ex-Census in June. The ex-Census number is the underlying trend for the economy.

  • Based on the hiring pattern for the decennial Census in 1990 and 2000, the ex-Census hiring was depressed from trend in May (perhaps because the Census hired so many temporary workers in May), and then the ex-Census hiring bounced back a little in June. That would argue for ignoring the May report, and expecting something on the order of March and April (average of 190K ex-Census).

    Andrew Tilton of Goldman Sachs noted this in a research note yesterday:
    "We are cautiously optimistic that June’s payroll report will show a pickup in private-sector payroll growth to around 150,000. In part, this is because there seems to be some “crowding out” of private sector payroll growth by short-term Census hiring—indeed, this may explain a good part of the payroll disappointment last month. Total payrolls should be down about 100,000 in June as a large portion of Census employment rolls off."
    There will be some preliminary reports on employment released during the coming week: the ADP employment report, the Chicago PMI, and the ISM surveys.

    However it is concerning that the regional Fed manufacturing surveys were mixed on employment (manufacturing has been one of the stronger sectors):

  • Philly Fed: "indexes for current employment and work hours were both slightly negative."

  • NY Fed: The index for number of employees slipped 10 points, to 12.4, and the average workweek index climbed from zero last month to 8.6.

  • Richmond Fed: "The manufacturing employment index registered a 9 versus May's reading of 4, and the average workweek measure added two points to 15. In contrast, wage growth lost 10 points to 10."

    In addition weekly initial unemployment claims have remained elevated. Initial weekly claims have averaged 464,000 thousand in June, almost the same level as each of the previous 5 months.

    Here is a repeat of the graph showing percent job losses during recessions, aligned at the bottom:

    Percent Job Losses During RecessionsClick on graph for larger image.

    This graph shows the job losses from the start of the employment recession, in percentage terms.

    The dotted line shows the impact of Census hiring. In May, there were 564,000 temporary 2010 Census workers on the payroll. Just under half of those Census jobs will go away in June, and the two red lines will meet sometime later this year.