by Calculated Risk on 8/06/2015 06:37:00 PM

From Goldman Sachs:

We forecast nonfarm payroll growth of 225k in July, in line with consensus expectations. Many labor market indicators were softer in July, but some important service sector indicators, such as ISM nonmanufacturing employment, were significantly stronger. On balance, we expect job growth roughly consistent with the 223k increase in June. We expect the unemployment rate to hold steady at 5.3%. Participation should at least partially rebound following an unexpected dip in June that likely reflected calendar effects. Finally, average hourly earnings are likely to rise 0.2% month-over-month in July.

From Merrill Lynch:

We expect a solid 215,000 gain in payrolls and a 0.3% rise in average hourly earnings. The unemployment rate should hold steady at 5.3%.

From Nomura:

[W]e forecast a 225k increase in private payrolls, with a 5k increase in government jobs, implying that total nonfarm payrolls will gain 230k workers. ... We forecast that average hourly earnings for private employees rose by 0.24% m-o-m in July, bouncing back from the weak flat reading in June. Last, we expect the unemployment rate to remain unchanged at 5.3% as the drop in labor force participation in June appeared anomalous and could show some rebound in July.

Friday:
• At 8:30 AM ET, the Employment Report for July. The consensus is for an increase of 212,000 non-farm payroll jobs added in July, down from the 223,000 non-farm payroll jobs added in June. The consensus is for the unemployment rate to be unchanged at 5.3%.

• At 3:00 PM, Consumer Credit for June from the Federal Reserve. The consensus is for an increase of $17.4 billion in credit.

by Calculated Risk on 8/06/2015 03:10:00 PM

The seasonal adjustment for July is a little tricky, so this might be a good time to review the seasonal pattern for employment.

Even in the best of years there are a significant number of jobs lost in the months of January and July. In 1994, when the economy added almost 3.9 million jobs, there were 2.25 million lost in January 1994 Not Seasonally Adjusted (NSA), and almost 1 million payroll jobs lost in July of that year (NSA).

Last year, in July 2014, 1.11 million total jobs were lost (NSA), however all of the decline in non-farm payrolls NSA was from the public sector (teacher layoffs).  Usually those teachers return to the payrolls in September and early October. Since this happens every year, the BLS applies a seasonal adjustment before reporting the headline number.

Although there were 1.11 million jobs lost in July 2014 (NSA), after the seasonal adjustment, the BLS reported 209 thousand non-farm jobs were added (SA) .

For the private sector, there are always a large number of jobs lost in January (retailers and others cutting jobs) and some jobs lost in September (summer hires let go).

Click on graph for larger image.

This graph shows the seasonal pattern since 2002 for both total non-farm jobs and private sector only payroll jobs. Notice the large spike down every January.

Also notice the second large spike down every July for public sector jobs (teachers).

In July 2014, there are about 1.3 million teacher jobs lost (NSA), and that was seasonally adjusted to a 5 thousand job gain.  This will be something to check in the jobs report tomorrow.

The key point is this series needs a seasonal adjustment, but the adjustment can be tricky.

by Calculated Risk on 8/06/2015 12:14:00 PM

On Friday at 8:30 AM ET, the BLS will release the employment report for July. The consensus, according to Bloomberg, is for an increase of 212,000 non-farm payroll jobs in July (with a range of estimates between 210,000 to 262,000), and for the unemployment rate to be unchanged at 5.3%.

The BLS reported 223,000 jobs added in June.

Here is a summary of recent data:

• The ADP employment report showed an increase of 185,000 private sector payroll jobs in July. This was below expectations of 210,000 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 decreased in July to 52.7%. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll jobs decreased about 5,000 in July. The ADP report indicated a 2,000 increase for manufacturing jobs.

The ISM non-manufacturing employment index increased in July to 59.6%. 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 330,000 in July. This employment reading was unusually strong, and the correlation might not be as useful.

Combined, the ISM indexes suggests employment gains of 325,000.  This suggests employment growth well above expectations.

• Initial weekly unemployment claims averaged close to 275,000 in July, about the same as in June. For the BLS reference week (includes the 12th of the month), initial claims were at 255,000; down from 268,000 during the reference week in June.

This suggests a lower level of layoffs in July.

• The final July University of Michigan consumer sentiment index decreased to 93.1 from the June reading of 96.1. Sentiment is frequently coincident with changes in the labor market, but there are other factors too - like gasoline prices.

• On small business hiring: The small business index from Intuit showed a 10,000 increase in small business employment in July, lower than in June.  From Intuit: Small Businesses Employment Increases in June

Small business employment rose by 10,000 jobs in July, an annual rate of 0.5 percent. However, Susan Woodward, the economist who works with Intuit to produce the indexes, said this is slower than the growth rate of 1.0 percent over the past year.

“Small business employment is still 2.3 percent below its pre-recession peak,” said Woodward. “The continued low level of construction employment, which is 17.5 percent below the pre-recession peak in mid-2006, accounts for the slow rate of small business recovery.

“A sign of continuing recovery in small business activity is the hiring rate, which has risen slowly but steadily since July 2009. An increase in the hiring rate reflects improved opportunities for workers,” Woodward said.

• Trim Tabs reported that the U.S. economy added 268,000 jobs in July. Note: "TrimTabs’ employment estimates are based on analysis of daily income tax deposits to the U.S. Treasury from the paychecks of the 142 million U.S. workers subject to withholding."

• Conclusion: Unfortunately none of the indicators above is very good at predicting the initial BLS employment report.  And the data was mixed.

There were several weaker indicators such the ADP report, ISM manufacturing, and small business hiring.

The ISM non-manufacturing, TrimTabs, and the low level of unemployment claims for the BLS reference week, all suggest a stronger report.

Historically the initial report for July tends to be weak, and I'll take the under on the consensus this month.

by Calculated Risk on 8/06/2015 08:33:00 AM

The DOL reported:

In the week ending August 1, the advance figure for seasonally adjusted initial claims was 270,000, an increase of 3,000 from the previous week's unrevised level of 267,000. The 4-week moving average was 268,250, a decrease of 6,500 from the previous week's unrevised average of 274,750.

There were no special factors impacting this week's initial claims.

The previous week was unrevised.

The following graph shows the 4-week moving average of weekly claims since 1971.

Click on graph for larger image.


The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 268,250.

This was lower than the consensus forecast of 273,000, and the low level of the 4-week average suggests few layoffs.

by Calculated Risk on 8/05/2015 08:01:00 PM

The BEA released the underlying details for the Q2 advance GDP report today.

Last Thursday, the BEA reported that investment in non-residential structures decreased slightly in Q2.

The decline was due to less investment in petroleum exploration. Investment in petroleum and natural gas exploration declined from a $112.5 billion annual rate in Q1 to a $81.1 billion annual rate in Q2.

Excluding petroleum, non-residential investment in structures increased at a 6.8% annual rate in Q2 (solid growth).

Click on graph for larger image.

The first graph shows investment in offices, malls and lodging as a percent of GDP. Office, mall and lodging investment has increased a little recently, but from a very low level.

Investment in offices increased in Q2, is down about 33% from the recent peak (as a percent of GDP) and increasing from a very low level - and is still below the lows for previous recessions (as percent of GDP).  .

Investment in multimerchandise shopping structures (malls) peaked in 2007 and is down about 54% from the peak.   The vacancy rate for malls is still very high, so investment will probably stay low for some time.

Lodging investment increased in Q2, and with the hotel occupancy rate near record levels, it is likely that hotel investment will increase further in the near future.  Lodging investment peaked at 0.31% of GDP in Q3 2008 and is down about 57%.

The second graph is for Residential investment components as a percent of GDP. According to the Bureau of Economic Analysis, RI includes new single family structures, multifamily structures, home improvement, Brokers’ commissions and other ownership transfer costs, and a few minor categories (dormitories, manufactured homes).

Investment in single family structures is now back to being the top category for residential investment.  Home improvement was the top category for twenty consecutive quarters following the housing bust ... but now investment in single family structures has been back on top for the last 7 quarters and will probably stay there for a long time.

However - even though investment in single family structures has increased from the bottom - single family investment is still very low, and still below the bottom for previous recessions as a percent of GDP. I expect further increases over the next few years.

Investment in single family structures was $210 billion (SAAR) (almost 1.2% of GDP).

Investment in home improvement was at a $176 billion Seasonally Adjusted Annual Rate (SAAR) in Q1 (just under 1.0% of GDP).

These graphs show investment is generally increasing, but is still very low.