Thursday, July 05, 2018

June Employment Preview

by Bill McBride on 7/05/2018 12:19:00 PM

On Friday at 8:30 AM ET, the BLS will release the employment report for June. The consensus is for an increase of 190,000 non-farm payroll jobs in May (with a range of estimates between 144,000 to 212,000), and for the unemployment rate to be unchanged at 3.9%.

The BLS reported 223,000 jobs added in May.

Here is a summary of recent data:

• The ADP employment report showed an increase of 177,000 private sector payroll jobs in June. This was below consensus expectations of 188,000 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 somewhat below expectations.

• The ISM manufacturing employment index decreased in June to 56.0%. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll increased about 13,000 in June. The ADP report indicated manufacturing jobs increased 12,000 in June.

The ISM non-manufacturing employment index decreased in June to 53.6%. A historical correlation between the ISM non-manufacturing employment index and the BLS employment report for non-manufacturing, suggests that private sector BLS non-manufacturing payroll jobs increased about 170,000 in June.

Combined, the ISM indexes suggests employment gains of about 183,000.  This suggests employment growth slightly below expectations.

Initial weekly unemployment claims averaged 224,500 in June, slightly higher than in May. For the BLS reference week (includes the 12th of the month), initial claims were at 218,000, down from 223,000 during the reference week in May.

The slight decrease during the reference week suggests a slightly stronger employment report in June than in May.

• The final June University of Michigan consumer sentiment index increased to 98.2 from the May reading of 98.0. Sentiment is frequently coincident with changes in the labor market, but there are other factors too like gasoline prices and politics.

• Merrill Lynch has introduced a new payrolls tracker based on private internal BAC data. The tracker suggests private payrolls increased by 203,000 in June, and this suggests employment growth slightly above expectations.

• Looking back at the three previous years:

In June 2017, the consensus was for 170,000 jobs, and the BLS reported 222,000 jobs added. In June 2016, the consensus was for 180,000 jobs, and the BLS reported 287,000 jobs added. In June 2015, the consensus was for 230,000 jobs, and the BLS reported 223,000 jobs added.

• Conclusion:  In general, these reports suggest a solid employment report, and probably close to expectations.  The ADP report and ISM surveys suggests a report slightly below expectations, but the reference week for unemployment claims, and the Merrill payrolls tracker suggest a stronger report.   My guess is that the employment report will be close to the consensus in June.