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Thursday, March 08, 2012

Employment Situation Preview

by Calculated Risk on 3/08/2012 03:30:00 PM

Tomorrow (Friday) the BLS will release the February Employment Situation Summary at 8:30 AM ET. Bloomberg is showing the consensus is for an increase of 204,000 payroll jobs in February, and for the unemployment rate to remain unchanged at 8.3%. The consensus has probably moving up a little this week based on recent reports.

• The Atlanta Fed has a new jobs calculator to answer the question: How many jobs does it take ...? Here is a description. You can enter different assumptions for the participation rate and population growth, and the tool will estimate how many jobs are needed to lower the unemployment rate to some target over a certain period. Very cool.

• The economic question for tomorrow (see pickem game on top right sidebar) is to take the over or under on the consensus for payroll jobs. Right now I'm in the lead for March with 6 correct answers - there is a four way tie for 2nd.

Here is a summary of recent data:

• The ADP employment report showed an increase of 216,000 private sector payroll jobs in February. Although ADP seems to track the BLS over time, the ADP report hasn't been very useful in predicting the BLS report. Also note that government payrolls declined by about 15,000 on average over the last couple of months so this suggests around 216,000 private nonfarm payroll jobs added, minus 15,000 government workers - or around 201,000 total jobs added in February (close to the consensus).

• The ISM manufacturing employment index decreased to 53.2% from 54.3% in January. A historical correlation between the ISM index and the BLS employment report for manufacturing, suggests that private sector BLS reported payroll jobs for manufacturing were unchanged in February.

The ISM service employment index decreased to 55.7% from 57.4% in February. Based on a historical correlation between the ISM non-manufacturing employment index and the BLS employment report for service, this reading suggests the gain of around 210,000 private payroll jobs for services in February.

Somewhat mixed, but overall the ISM surveys suggest an employment report at close to the consensus.

Initial weekly unemployment claims averaged about 355,000 in February, down from 377,000 average in January and December.

For the BLS reference week (includes the 12th of the month), initial claims were at the lowest level since early 2008. This is a very positive sign.

• The final February Reuters / University of Michigan consumer sentiment index increased to 75.3, up slightly from the January reading of 75.0. This is frequently coincident with changes in the labor market, but also strongly related to gasoline prices and other factors. This suggests a weak but improving labor market. This is close to the same level as last month, and also in February 2011 (before the tsunami). The BLS reported jobs gain over over 200 thousand for both months.

• And a little pessimism from the NFIB: NFIB Jobs Statement: Job Creation Breaks Even in February; Hiring Plans Look Grim

“February was a ‘break-even’ month for job creators on Main Street. For small employers, the net change in employment per firm (seasonally adjusted) was 0.04. While this is better than January’s net zero report, it’s certainly nothing to get excited about."
The participants in the NFIB surveys aren't doing much hiring, however a small business report from Intuit was more upbeat.

• And on the unemployment rate from Gallup: U.S. Unemployment Up in February
The February unemployment rate the U.S. government reports on Friday morning will be based largely on mid-month conditions. In mid-February, Gallup reported that its U.S. unemployment rate had increased to 9.0% from 8.3% in mid-January. The mid-month reading normally provides a relatively good estimate of the government's unadjusted unemployment rate for the month.

Assuming the government's unadjusted rate increases -- from its 8.8% in January -- to at least match Gallup's mid-month measurement for February, then the government should also report an increase in the seasonally adjusted unemployment rate for February.
Last February, the U.S. Bureau of Labor Statistics applied a seasonal adjustment factor of 0.5 points to its unadjusted unemployment rate for the month. If that same seasonal adjustment is applied to Gallup's mid-month unemployment rate of 9.0%, it would produce a seasonally adjusted unemployment rate of 8.5%. ... Gallup therefore forecasts an increase in the unemployment rate.
NOTE: The Gallup poll results are Not Seasonally Adjusted (NSA), so use with caution. This does suggest some increase in the headline seasonally adjusted unemployment rate.

There always seems to be some randomness to the employment report, but the overall situation has improved (lower initial weekly unemployment claims, more job openings). The ADP and ISM reports suggest the consensus is close, however since most of the recent data has been "better than expected" - and the weather was better than normal in February - I'll once again take the over (above 204,000).