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Thursday, May 03, 2012

Employment Situation Preview

by Calculated Risk on 5/03/2012 01:44:00 PM

Tomorrow the BLS will release the April Employment Situation Summary at 8:30 AM ET. Bloomberg is showing the consensus is for an increase of 165,000 payroll jobs in April, and for the unemployment rate to remain unchanged at 8.2%.

Note on weather:
• The weather was mild in January and February, and it is possible that some hiring was pulled forward. I looked back at previous years with mild weather (using the BLS "not at work, bad weather" measurement), and employment gains in March and April didn't seem to exhibit much "payback" following the mild weather during January and February. However Goldman Sachs analysts think there will be some payback in the April report, they note: "[O]ur current best guess is that weather has boosted the level of payrolls by around 100,000 as of February, and may have shaved about 20,000 from the March report. Going forward, we currently expect payback of about 50,000 in April and the remaining 30,000 in May."

Here is a summary of recent data:

• The ADP employment report showed an increase of 119,000 private sector payroll jobs in April. Although ADP seems to track the BLS over time, the ADP report hasn't been very useful in predicting the BLS report. There has been some discussion about ADP reporting fewer payroll jobs added than the BLS report over the last two years (April 2010 and April 2011) - the argument being that that may happen again. However, in earlier years (2006 - 2009) ADP showed more jobs added (or fewer jobs lost) in April than the BLS, so I'm not sure there is a seasonal pattern.

• The ISM manufacturing employment index increased to 57.3% from 56.1% in March. A historical correlation between the ISM index and the BLS employment report for manufacturing, suggests that private sector BLS reported payroll jobs for manufacturing increased about 22,000 in April.

The ISM service employment index decreased to 54.2% from 56.7% in March. 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 170,000 private payroll jobs for services in April.

Combined the ISM surveys suggest an employment report somewhat above the consensus.

Initial weekly unemployment claims averaged about 384,000 in April, up from 369,000 average in January , February and March.

For the BLS reference week (includes the 12th of the month), initial claims were at 389,000; the highest level this year and about the level of last November when the economy added 157,000 payroll jobs.

• The final April Reuters / University of Michigan consumer sentiment index increased to 76.4, up slightly from the March reading of 76.2. 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 slightly improving labor market.

• The small business index from Intuit showed 40,000 payroll jobs added, down from 65,000 in March.

• And on the unemployment rate from Gallup: Gallup Seasonally Adjusted U.S. Unemployment Rate Up in April

U.S. unemployment, as measured by Gallup without seasonal adjustment, showed a modest decline to 8.3% in April from 8.4% in March. However, applying the government's historical April adjustment to Gallup's unadjusted number yields a seasonally adjusted April estimate of 8.6%, up from 8.1% in March.
Note: Gallup only recently has been providing a seasonally adjusted estimate for the unemployment rate, so use with caution (Gallup provides some caveats), but this does suggest an increase in the headline unemployment rate in April.

• Conclusion: There seems to be a growing sense that the employment report will disappoint tomorrow based on higher initial weekly unemployment claims during the reference period, the weaker than expected ADP employment report, and the weaker than expected ISM services index. Also there could be some "payback" from hiring during the winter due to the mild weather. However the combined ISM reports suggest the consensus is close. On the positive side, Goldman also noted that the retail sector was hit particularly hard over the last two months (possibly due to some large retailer layoffs), and that will probably not happen in April

There always seems to be some randomness to the employment report, but this month I'll take the under (under 165,000 payroll jobs), and I think an increase in the unemployment rate is possible (this depends on the participation rate and if discouraged workers return to the labor force).