In June 2011, ADP (the largest payroll provider in the USA) says USA non-farm private payrolls increased 157,000. This means employment growth approximately equals workforce growth. The June 2011 data suggests the employment picture in the USA is neither improving or worsening.
Econintersect believes the simplistic sampling extrapolation technique of ADP yields a far better picture of the employment situation than the complicated, convoluted Bureau of Labor Statistics (BLS) methodology.
Historically employment is the confirmation that real economic growth is occurring. As background, many economic factors impact jobs growth. How many jobs businesses create in any one month is not directly dependent on these economic factors, but on individual decisions. The impact of all the economic factors is averaged out over many months.
In our June 2011 economic forecast, we estimated non-farm payroll growth at 130,000, which is far above some other pundits who have estimated between 50,000 and 68,000.
Small and medium size business is the jobs growth engine. This month it rebounded from a terrible May 2011 – but remains in a less good downtrend. You will notice that large business is not a growth engine for employment – and when you listen to the political debate on this subject, keep in mind that it is only small and medium sized business which grows jobs.
Because of the differences in methodology, many pundits ignore the ADP numbers – while waiting for the BLS numbers released tomorrow. Although there can be a low correlation in a particular month, the different methodologies tend to balance out, and the correlations are excellent outside of the data turning points. We are now 15 months past the post recession turning point in employment.
We await the wacky BLS employment data.
Chief economist for the National Federation of Independent Business (NFIB) William C. Dunkelberg, issued the following statement on June’s job numbers, based on NFIB’s monthly economic survey that will be released on Tuesday, July 12, 2011.
New jobs are not to be found on Main Street. For small firms, reported job losses per firm declined sharply in June, as did the net percent of firms that increased employment over the last three months. A seasonally adjusted net negative 7 percent of owners increased employment, a 4 point increase from May.
Seasonally adjusted, 9 percent of owners hired new employees last month, a 1 point decline from May, while 16 percent reduced employment, a 3 point increase. The remaining 75 percent of owners made no change in employment. Manufacturing was the only winning sector to post average positive net growth; but job losses were posted by firms in financial, non-professional services, construction, negating any gains made.
The poor recovery in the jobs numbers is a result of very low housing starts activity and lagging expenditures on ‘services,’ both labor intensive industries dominated by small firms. The most recent reports on consumer spending show continued weakness (except paying more for food and gas) and housing starts show no hope for much job creation in construction.
Fifteen percent (seasonally adjusted) reported unfilled job openings (up 3 points), indicating a decline in the unemployment rate. Over the next three months, 11 percent plan to increase employment (down 2 points), and 7 percent plan to reduce their workforce (down 1 point), yielding a seasonally adjusted net 3 percent of owners planning to create new jobs, a 4 point gain from May. So, going forward, the job picture is a bit brighter than June’s actual dismal performance.
But overall, the June employment numbers quashed any hope of establishing positive trend in job creation. It was a serious reversal.
Outplacement agency Challenger, Gray & Christmas, Inc. data shows that, while layoffs have been trending up, they remain historically very low. However, hiring is also anemic. John A. Challenger, chief executive officer states:
The employment picture remains a bit cloudy. Continued slowness in the pace of job cuts is certainly promising. However, hiring is coming in spurts and is not quite robust enough to make a significant dent in unemployment.
We saw relatively strong payroll gains in February, March and April, only to see much slower growth in May. The next three or four months of employment and hiring data will be important indicators of whether the expansion has prematurely hit the brakes or if the dips in job creation are simply bumps on the road to recovery.
The weakest link in the economy right now is the government sector. It continues to see the heaviest downsizing, with employers in the sector announcing 77,591 job cuts so far this year, including an industry-leading 10,176 in June. If there is any silver lining, it is that the six month total is down 22 percent from the 99,676 government job cuts announced by this point a year ago.
The second-ranked retail sector has also seen job cuts fall from a year ago. The 23,027 job cuts announced by these employers through June are 12 percent lower than the 26,181 job cuts in the first six months of 2010.
Unfortunately, while the government and retail sectors have seen job cuts decline from a year ago, the other three industries rounding out the top five job-cutting sectors of 2011 to date have all seen notable increases in announced layoffs. The biggest surge was felt in the aerospace and defense industry, which has experienced a 241 percent increase in job cuts, from 6,121 in 2010 to 20,851 this year.
Firms in the financial services sector have increased downsizing by 18.5 percent to 11,734, after announcing 9,901 in the first six months of 2010. Job cuts in the industrial goods sector are up 28 percent from a year ago.
These are significant increases, but the job-cut totals are still low enough to prevent alarm bells from sounding. However, the fact that job cuts are rising in these particular industries is notable, since aerospace, financial services and industrial goods are all bellwether industries when it comes to the overall health of the economy.
As for the remainder of the year, we don’t see much indication of a second-half surge in job-cut activity. The hiring picture is a little cloudier. While the government attempts to enact policies that will spur job creation, it really comes down to consumer and business demand for products and services and, right now, that demand remains relatively weak.
Any progress made on the hiring front will appear anemic due to the fact that we started in such a deep hole. To provide some perspective, the 16-month long recession that stretched from July 1981 to November 1982 resulted in 2.7 million job losses from the nation’s payrolls. It took about 11 months for employment to return to pre-recession levels.
Following the relatively short 2001 recession, which also saw 2.7 million jobs losses, it took nearly 40 months for payrolls to return to pre-recession levels. In the Great Recession of 2008-2009, more than 8.7 million jobs were lost. It has been nearly 24 months since the end of the recession and employment levels are still about seven million jobs shy of the pre-recession peak.
So, while we expect that employers will continue to steadily add jobs in the second half of 2011, at times it will appear that employment is standing still.
Is A Budget Deficit Necessary for an Economy? by Steven Hansen
What’s Up With Employment? by Steven Hansen
JOLTS: Likely Indicating Slowing Employment Growth by Steven Hansen
Is the Stimulus Effecting Unemployment Claims? by Steven Hansen
College Training for Unemployment by Mike Konczal
Economic Damage Storm Track of The Great Recession by Ted Kavadas