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Thursday, November 03, 2011

Employment Situation Preview: Another Weak Report

by Calculated Risk on 11/03/2011 03:35:00 PM

On Friday the BLS will release the October Employment Situation Summary at 8:30 AM ET. Bloomberg is showing the consensus is for an increase of 90,000 payroll jobs in October, and for the unemployment rate to remain unchanged at 9.1%.

Overall the economic data for October was fairly weak, though slightly better than in August and September. The BLS reported 57,000 jobs added in August, and 103,000 added in September. Of course, the Verizon labor dispute subtracted 45,000 payroll jobs in August, and those jobs were added back in the September report. The average of those two months was 80,000 jobs added, and if the economy was a little "better" in October, we'd expect a few more jobs added.

Here is a summary of recent data:

• The ADP employment report showed an increase of 110,000 private sector payroll jobs in October. Unfortunately ADP hasn't been very useful in predicting the BLS report. Also note that government payrolls have been shrinking by about 30,000 on average per month this year, so this suggests around 110,000 private nonfarm payroll jobs added, minus 30,000 government workers - or around 80,000 total jobs added in September.

• The ISM manufacturing employment index decreased slightly to 53.5% from 53.8% in September. Based on a historical correlation between the ISM index and the BLS employment report for manufacturing, this reading suggests no change in private payroll jobs for manufacturing in October.

The ISM non-manufacturing employment index increased 4.6 percentage points to 53.3. A historical correlation suggests this indicates about 150,000 service jobs added in October.

Initial weekly unemployment claims averaged about 404,000 per week in October, down from 418,000 per week in September and 411,000 average in August.

For the BLS reference week (includes the 12th of the month), initial claims were at the lowest level since April - and in April the BLS reported 217,000 jobs added.

• The final October Reuters / University of Michigan consumer sentiment index increased to 60.9 from 59.4 in September. This is frequently coincident with changes in the labor market, but also strongly related to gasoline prices and other factors. In general this low level would suggest a weak labor market - but slightly better than in August and September.

• And on the unemployment rate from Gallup: U.S. Unemployment Improves in October

Unemployment, as measured by Gallup without seasonal adjustment, is at 8.4% at the end of October, down from 8.7% in September and 9.2% in August. Unemployment was at 8.3% in mid-October -- its lowest level since Gallup began continuous monitoring in January 2010. Gallup's unemployment measure is also now much lower compared with a year ago -- it stood at 9.4% at the end of October 2010.
NOTE: The Gallup poll results are Not Seasonally Adjusted (NSA), so use with caution. Usually the NSA unemployment rate declines in October, and the seasonally adjusted rate is higher - so this would suggest little change in the unemployment rate from September.

There always seems to be some randomness to the employment report, but my guess is the BLS will report above the consensus of 90,000. The ADP report would suggest around 80,000 jobs added, and consumer sentiment is very poor suggesting even fewer jobs. However the rebound in the ISM non-manufacturing survey is encouraging, and so is the decline in initial weekly unemployment claims. But 100,000 jobs added is a weak report - heck, even 200,000 jobs added would be a poor month with so many people unemployed.

Caveat: my track record when I take the under has been very good - but recently I've been mostly wrong when I've taken the over (although I correctly took the over last month)!