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Thursday, December 05, 2013

Employment Preview for November

by Calculated Risk on 12/05/2013 10:58:00 AM

In October I was looking for an Upside Payroll Surprise. For November, my guess is closer to the consensus forecast of 180,000 payroll jobs added.   The consensus is for the unemployment rate to decrease to 7.2% in November from 7.3% in October.

The October employment report was impacted by the government shutdown, and the unemployment rate increased in October to 7.3% from 7.2% in September.  Even worse, the participation rate declined sharply in October to 62.8% from 63.2% in September.  One of the keys for the November report will be if those ugly October numbers are reversed. 

Here is a summary of recent data:

• The ADP employment report showed an increase of 215,000 private sector payroll jobs in November. This was above expectations of 185,000 private sector payroll jobs added. The ADP report hasn't been very useful in predicting the BLS report for any one month. But in general, this suggests employment growth above expectations.

• The ISM manufacturing employment index increased in November to 56.5%, from 53.2% in October. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll jobs increased about 15,000 in November. The ADP report indicated a 18,000 increase for manufacturing jobs in November.

The ISM non-manufacturing employment index decreased in November to 52.5% from 56.2% in October. A historical correlation between the ISM non-manufacturing index and the BLS employment report for non-manufacturing, suggests that private sector BLS reported payroll jobs for non-manufacturing increased by about 140,000 in November.

Taken together, these surveys suggest around 155,000 jobs added in November - below the consensus forecast.

Initial weekly unemployment claims averaged close to 322,000 in November. This was down sharply from an average of 358,000 in October, but up from the 305,000 average in September.  However there were some computer problems in California, and claims in October were probably too high, and claims in September were probably too low. 

This was below the level in August (when the BLS reported 238,000 payroll jobs added), and far below the level of November 2012 when the BLS reported 247,000 jobs added (after revisions).  This suggests fewer layoffs, and possibly more net payroll jobs added than the consensus forecast.

• The final November Reuters / University of Michigan consumer sentiment index increased to 75.1 from the October reading of 73.2. This is frequently coincident with changes in the labor market, but in this case sentiment is recovering from the government shutdown.

• The small business index from Intuit showed a 10,000 increase in small business employment in November. This is the largest increase in this index since May and June, and suggests a pickup in small business hiring.

• Conclusion: As usual the data was mixed. The ADP report was higher in November than in October, however the ISM surveys suggest a slower increase in payrolls. Weekly claims for the reference week were at the lowest level this year excluding September when there were computer issues (the reference week includes the 12th of the month), and consumer sentiment increased (recovering from government shutdown).  Also the Intuit small business index showed a pickup in hiring.

There is always some randomness to the employment report.   My guess is the report will be close to the consensus forecast of 180,000 nonfarm payrolls jobs added in November.