Thursday, September 06, 2018

August Employment Preview

by Bill McBride on 9/06/2018 01:07:00 PM

On Friday at 8:30 AM ET, the BLS will release the employment report for August. The consensus is for an increase of 195,000 non-farm payroll jobs in August (with a range of estimates between 150,000 to 237,000), and for the unemployment rate to decline to 3.8%.

The BLS reported 157,000 jobs added in July.

Here is a summary of recent data:

• The ADP employment report showed an increase of 163,000 private sector payroll jobs in August. This was below consensus expectations of 182,000 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 below expectations.

• The ISM manufacturing employment index increased in August to 58.5%. 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 25,000 in August. The ADP report indicated manufacturing jobs increased 19,000 in August.

The ISM non-manufacturing employment index increased in August to 56.7%. 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 250,000 in August.

Combined, the ISM indexes suggests employment gains of about 275,000.  This suggests employment growth well above expectations.

Initial weekly unemployment claims averaged 209,500 in August down from 214,500 in July. For the BLS reference week (includes the 12th of the month), initial claims were at 210,000, up slightly from 208,000 during the reference week in July.

The slight increase during the reference week suggests a solid employment report in August.

• The final August University of Michigan consumer sentiment index decreased to 96.2 from the July reading of 97.9. 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 245,000 in August, and this suggests employment growth above expectations.

• Looking back at the three previous years:

In August 2017, the consensus was for 180,000 jobs, and the BLS reported 156,000 jobs added.

In August 2016, the consensus was for 175,000 jobs, and the BLS reported 151,000 jobs added.

In August 2015, the consensus was for 223,000 jobs, and the BLS reported 173,000 jobs added.

In general it looks like the consensus is frequently too high for the month of August.

• Conclusion:  These reports suggest a solid employment report in August.  The ADP report suggests employment growth below expectations, however, the ISM reports, and the Merrill payrolls tracker suggest a report above expectations.   Since the consensus has been too high for August over the last few years, my guess is that the employment report will be below expectations (usually these indicators give a decent indication, however last month I took the "over", and the actual was "under").