In Depth Analysis: CalculatedRisk Newsletter on Real Estate (Ad Free) Read it here.

Thursday, August 04, 2011

Employment Situation Preview: Another Weak Report

by Calculated Risk on 8/04/2011 08:58:00 PM

Tomorrow the BLS will release the July Employment Situation Summary at 8:30 AM ET. Bloomberg is showing the consensus is for an increase of 75,000 payroll jobs in July, and for the unemployment rate to hold steady at 9.2%.

I've seen estimates all over the place, including hearing a few whispers of a negative headline number. This isn't surprising since the economic data for July was weak - especially over the last couple of weeks as companies and individuals prepared for a possible U.S. government default.

However the BLS survey reference week includes the 12th of the month (the 2nd full week of July), and that was before the economy froze up due to the D.C. debate, and also before the European crisis really flared up again. So even with the downbeat economic reports, it is possible that the headline number could be at or above consensus.

No wonder people are uncertain! Here is a summary of recent data:

• The ADP employment report (private sector only) showed an increase of 114,000 payroll jobs in July. Of course, in June, ADP initially reported an increase of 157,000 jobs and the BLS only reported a gain of 57,000 private sector jobs (and only 18,000 total jobs including government layoffs). The ADP uses the same reference week as the BLS. Also note that government payrolls have been shrinking by about 30,000 each month.

Initial weekly unemployment claims averaged about 412,000 per week in July, down slightly from the 427,000 average in June. Not great, but an improvement.

• The ISM manufacturing employment index decreased to 53.5%, down from 59.9% in June, and the ISM non-manufacturing index decreased to 52.5% in July from 54.1%. Based on a historical correlation between the ISM indexes and the BLS employment report, these readings would suggest close to 100,000 private payroll jobs added for services and manufacturing in July (similar to the ADP report).

• The final July Reuters / University of Michigan consumer sentiment index decreased to 63.7 from 71.5 in June. This is frequently coincident with changes in the labor market, but also strongly related to gasoline prices and other factors. This might have been impacted by the debt ceiling debate, but in general this would suggest a weak labor market.

• And on the unemployment rate from Gallup: Gallup Finds Unemployment Unchanged in July

U.S. unemployment, as measured by Gallup without seasonal adjustment, is at 8.8% at the end of July, showing essentially no change from June 2011 (8.7%) or July a year ago (8.9%).
NOTE: The Gallup poll results are Not Seasonally Adjusted (NSA), so use with caution. Usually the NSA unemployment rate increases in July, so this would suggest little change in the unemployment rate.

My guess is that payroll growth was positive in July, but I'll take the "under" on the consensus based on the weak economic news.