Thursday, October 04, 2018

September Employment Preview

by Bill McBride on 10/04/2018 01:01:00 PM

On Friday at 8:30 AM ET, the BLS will release the employment report for September. The consensus is for an increase of 180,000 non-farm payroll jobs in September (with a range of estimates between 150,000 to 195,000), and for the unemployment rate to decline to 3.8%.

The BLS reported 201,000 jobs added in August.

Here is a summary of recent data:

• The ADP employment report showed an increase of 230,000 private sector payroll jobs in August. This was well above consensus expectations of 179,000 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 September to 58.8%. 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 30,000 in September. The ADP report indicated manufacturing jobs increased 7,000 in September.

The ISM non-manufacturing employment index increased in September to 62.4%. 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 significantly in September (this is a very high reading, and with the only other reading recently in this range, the BLS report only 139 thousand non-manufacturing jobs added).

Combined, the ISM indexes suggests employment gains of over 300,000.  This suggests employment growth well above expectations.

Initial weekly unemployment claims averaged 207,000 in September, down from 209,500 in July. For the BLS reference week (includes the 12th of the month), initial claims were at 202,000, down from 210,000 during the reference week in August.

The decrease during the reference week suggests a solid employment report in September. Note: Based on unemployment claims, it appears there will be little or no impact from Hurricane Florence on the employment report.

• The final September University of Michigan consumer sentiment index increased to 100.1 from the August reading of 96.2. 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 234,000 in September, and this suggests employment growth above expectations.

• Looking back at the three previous years:

In September 2017, the consensus was for 100,000 jobs, and the BLS reported 33,000 jobs lost (Hurricane impacted and revised up later).

In September 2016, the consensus was for 168,000 jobs, and the BLS reported 156,000 jobs added.

In September 2015, the consensus was for 203,000 jobs, and the BLS reported 142,000 jobs added.

Even excluding September 2017 due to the hurricanes, it looks like the consensus is frequently too high for the month of September.

• Conclusion:  These reports suggest a strong employment report in September.    Only the previous history (last three years) would suggest a somewhat disappointing report.   My guess is the report will be above expectations.