There is no way to spin terrible data – and private sector jobs growth at 17,000 is (expletive deleted) bad. If you add that the government employment contracted 17,000 wiping out all jobs growth – you are at a loss for words.
Employment is one case where there are multiple data sources we can use to validate what we are being reported. ADP’s employment data was released Wednesday (analysis here).
- BLS reported: 0K
- ADP reported: 91K
- Consensus Estimate: 75K
While everyone is running around thinking the employment growth, while not good, at least is not terrible. I again point out that this growth is produced by an algorithm. Seasonally adjusted data spreads growth over the entire year. Employment does not really grow in the second half of the year – and the BLS non-farm private non-seasonally adjusted payrolls actually fell 4,000 in July.
Econintersect has repeatedly pointed out questions about how the seasonal adjustment algorithms used by the BLS introduce uncertainty into interpretation of month to month changes in employment. In the current data, however, there is no question that there is no uncertainty in the finding that this is terrible data.
However, we do have the less terrible data from ADP earlier this week. I repeat my advisory on BLS vs ADP data:
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.
Because of the differences in methodology, many pundits ignore the ADP numbers – while waiting for the BLS numbers. 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 16 months past the post recession turning point in employment.
Looking below the headlines:
- In the latest BLS report employment-population ratio ROSE from 58.1% t0 58.2% – and the labor force participation rate ROSE from 63.9% to 64.0%). These ratios tell you that the population or workforce without a job improved by 300,000.
- Econintersect does not like the BLS methodology of determining unemployment – only participation rates or employment-populations ratios tell you what is really going on with unemployment. But for those who like to read this the headline U-3 unemployment rate remained unchanged at 9.1%.
- The U-6 “all in” unemployment rate (including those working part time who want a full time job) rose from 16.1% back to 16.2%.
- Average hours worked fell slightly from 34.3 to 34.2. A rising number indicates an expanding economy.
- Government employment contracted 17,000 (vs 37,000 in July) with the Federal Government contracting 2,000 – while state governments expanding by 5,000 and local governments contracting 20,000.
- The big contributors to employment growth this month were professional and business services (28,000) and education and health (34,000). In general, the growth was moderate across all sectors – but the drag was 43,700 jobs in the telecommunications sector (45,000 workers were on strike at Verizon).
- Economic markers used by Econintersect to benchmark economic growth were mediocre. The transport sector employment was down a significant 2.4% over July. The support services industry (including temporary help) was up a statistically insignificant 0.1% over June. Econintersect believes the transport sector is a forward indicator – and this data is really bad. Others look at temporary help as a forward indicator, and this also is weak.
- Manufacturing fell 3,000 versus a gain of 24,000 last month..
- The unemployment rate for people between 20 and 24 rose from a upwardly revised 14.6% to 14.8%. Econintersect posted an analysis on university graduate unemployment which is worth a read (analysis here).
- Average hourly earnings down-ticked slightly from a downwardly revised $19.49 to $19.47.
In general, the growth was moderate across all sectors – but the drag was 43,700 jobs in the telecommunications sector (45,000 workers were on strike at Verizon). Also, employment growth can be attributed to the growing health sector with the addition of healthcare jobs in Los Angeles.
Please refer to ADP Employment Number Bad – And the Equities Markets Rejoice for the statement outplacement agency Challenger expressing concern over the burst of recent job cuts.
Chief economist for the National Federation of Independent Business (NFIB) William C. Dunkelberg, issued the following statement a day before the jobs report was issued:
“We wish there was good news to report, but sadly, we will give you more of the same: The prospects for a good jobs report are dim. In August, small-business owners reported job losses averaging .08 workers per firm over the last three months. This follows a loss of .23 workers per firm reported in June and .15 workers per firm in July. The good news is that the trend is moving in the right direction—losses appear to be decreasing—although it doesn’t seem to be moving fast enough to close the employment void we’ve been experiencing for the last several years.
“Seasonally adjusted, 14 percent of owners reported reducing employment an average of 2.7 workers per firm; that compared to 12 percent of the owners that added an average of 3.1 workers per firm. The remaining 74 percent of owners made no net change in employment (48 percent hired or tried to hire while 33 percent reported few or no qualified applicants for positions). Fifteen percent (seasonally adjusted) reported hard to fill job openings (up 3 points).
“While the readings remain historically weak, we can find a grain of encouragement as we look at hiring prospects. Over the next three months, 11 percent plan to increase employment (up 1 point), and 12 percent plan to reduce their workforce (also up 1 point), yielding a seasonally adjusted net 5 percent of owners planning to create new jobs, which is a 3 point improvement over July. But, let’s not get ahead of ourselves.
“By region, job creation plans were weakest in the Mid-Atlantic, South Atlantic and Pacific states—something that could change dramatically in areas impacted by Hurricane Irene that will require additional workers for cleanup and repairs. By sector, manufacturers made some good news, showing the strongest level of growth among the sectors surveyed, compared to retail and professional service firms which also were positive but slightly weaker. All other industries reported virtually no change with the exception of construction.
“Overall, the employment picture is largely unchanged. We anticipate a weak payroll number and little change in the unemployment rate.”
In our August 2011 economic forecast, we estimated non-farm payroll growth at 145,000 – 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.
Wrapping this up, this is not a good report. I tend to believe the ADP report with a higher jobs growth. But ADP data is also terrible in perspective. The zero growth in the BLS data seems to be a combination of methodology and Verizon strike.