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Thursday, February 06, 2020

January Employment Preview

by Calculated Risk on 2/06/2020 11:28:00 AM

Special Notes: The 2020 Decennial Census will start increasing hiring in early 2020. In reporting the employment report, the headline number should be reduced (or increased) by the change in Census temporary employment to show the underlying trend.  Based on previous Census hiring, I expect the Census hired 5 to 15 thousand temporary workers in January.

Also, the annual benchmark revision will be released with the January report. The preliminary estimate of the Benchmark revision "indicates a downward adjustment to March 2019 total nonfarm employment of -501,000". Usually the preliminary estimate is pretty close to the final estimate. These jobs are subtracted from the March 2019 total, and then wedged-back to March 2018.

On Friday at 8:30 AM ET, the BLS will release the employment report for January. The consensus is for an increase of 161,000 non-farm payroll jobs, and for the unemployment rate to be unchanged at 3.5%.

Last month, the BLS reported 145,000 jobs added in December (142,000 ex-Census).

Here is a summary of recent data:

• The ADP employment report showed an increase of 291,000 private sector payroll jobs in January. This was well above consensus expectations of 159,000 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 January to 46.4%. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll decreased around 40,000 in January. The ADP report indicated manufacturing jobs increased 10,000 in January.

The ISM non-manufacturing employment index decreased in January to 53.1%. 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 increased 155,000 in January.

Combined, the ISM surveys suggest employment gains at 115,000, suggesting gains below consensus expectations.

Initial weekly unemployment claims averaged 212,000 in January, down from 224,000 in December. For the BLS reference week (includes the 12th of the month), initial claims were at 223,000, down from 235,000 during the reference week the previous month.

This suggest fewer layoffs (during the reference week) in January than in December.

• The final January University of Michigan consumer sentiment index increased to 99.8 from the December reading of 99.3. Sentiment is frequently coincident with changes in the labor market, but there are other factors too like gasoline prices and politics.

• The BofA job tracker increased in January to 161,000, up from 54,000 in December, suggesting more jobs added in January.  This suggests job growth close to consensus.

• Weather: The weather was mostly warm and dry during the reference period, and this suggests a boost to employment in January.  The ADP report quoted 'Mark Zandi, chief economist of Moody’s Analytics, said, “Mild winter weather provided a significant boost to the January employment gain.'

• Conclusion: The data is mixed.  For example the ADP report suggests a strong employment report, and the ISM surveys suggest employment growth below expectations.   With some boost from the weather, I expect employment gains above expectations.