You will hear a lot of pundits out there saying September BLS Jobs report while better than expected – ain’t good.
- BLS reported: 103K (non-farm) and 137K (non-farm private)
- ADP reported: 91K (non-farm private)
- Market expected: 83K (non-farm)
- Econintersect’s Forecasts: 105K and 145K (non-farm private – different basis)
There is no way to convey my full analysis without boring a reader to death, but overall based on economic uncertainty headwinds – the jobs gain was good. Of course it nowhere meets 170,000 jobs growth (based on a employment / population ratio of 64.4) necessary to provide jobs for new entrants to the workforce.
I repeat my past warning as non-seasonally adjusted non-farm payrolls declined 519,000:
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.
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.
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 using seasonally adjusted data:
- In the latest BLS report employment-population ratio ROSE from 58.2% t0 58.3% – and the labor force participation rate ROSE from 64.0% to 64.3%). 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 16.2% to 16.5%.
- Average hours worked (table B-2) rose slightly from 34.2 to 34.3. A rising number indicates an expanding economy.
- Government employment contracted 34,000 with the Federal Government contracting 1,000 – while state governments grew 2,000 and local governments contracting 35,000.
- The big contributors to employment growth this month were professional and business services (48,000), construction (26,000) and information services (34,000 – due to 45,000 Verizon workers returning to work). In general, the growth was moderate across all sectors – but the drag was the government sectors.
- Economic markers used by Econintersect to benchmark economic growth were mediocre. The transport sector employment was down and insignificant 0.05% month-over-month. The support services industry (including temporary help) was up 0.3% month-over-month. Econintersect believes the transport sector is a forward indicator – and this data is essentially flat. Others look at temporary help as a forward indicator, and this weakly positive.
- Manufacturing fell 13,000 after losing 4,000 in August.
- The unemployment rate for people between 20 and 24 (Table A-10) fell slightly from 14.8% to 14.7%.
- Average hourly earnings (Table B-3) up-ticked slightly from $23.08 to $23.12.
Please refer to Challenger Layoff Report Drowns ADP’s Improved Employment for September 2011 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:
“There is a reason that Washington is talking in circles when it comes to the economy: There is no good news to report. Until sales improve, until it becomes cost-effective to hire new workers, we cannot expect small-business owners to take advantage of new hiring tax credits and increase their employee rolls. And the numbers prove it.
“For the fourth month in a row, small-business owners reported an overall reduction in employment, posting an average reduction of 0.3 workers per firm. Seasonally adjusted, 10 percent of the owners added an average of 3.2 workers per firm over the past few months, but those increases are dissolved by the 15 percent who reduced employment by an average of 2.9 workers per firm. The remaining 75 percent of owners made no net change in employment.
“Fourteen percent (seasonally adjusted) reported hard to fill job openings, a decrease of 1 point from last month. And looking ahead, 11 percent plan to increase employment (unchanged) over the next three months, while 12 percent plan to reduce their workforce (also unchanged), yielding a seasonally adjusted net 4 percent of owners planning to create new jobs, one point lower than August and far below the double digit readings that are typical during an expansion.
“A snapshot at regional numbers reveals that job creation plans were quite negative among firms in New England, albeit less so in the Mid-Atlantic and South Atlantic, West South Central and Pacific states. It would seem that the need for additional workers for hurricane cleanup was not strong enough to overcome broader weak economic conditions on the East coast.
“What do we expect Friday’s DOL numbers to reveal? Our prediction is a weak payroll number and little change in the unemployment rate – certainly nothing positive.”
In our September 2011 economic forecast published in late August, 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. Trending ADP and adjusting for last months 45,000 strikers – we estimated jobs growth at 105,000.
Stepping back from the data, and:
- removing the return of the 45,000 Verizon strikers & the government cutbacks;
- realizing business is being told there is recession uncertainty; and,
- understanding consumers are hearing bad economic news daily –
– this data was a relief from the negative trends. Both ADP and BLS are correlating, and both are holding steady (essentially unchanged month-over-month) after adjusting for the methodology differences and nuances in the data. It is trends which are important right now, not the specifics, and for employment the trend is almost flat (slight positive bias) at an unsatisfactory level.