Preview of July Employment Report

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 185,000 non-farm payroll jobs in July (with a range of estimates between 150,000 to 215,000, and for the unemployment rate to decrease to 4.8%.

The BLS reported 287,000 jobs added in June.

Here is a summary of recent data:

• The ADP employment report showed an increase of 179,000 private sector payroll jobs in July. This was above expectations of 165,000 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 somewhat above expectations.

• The ISM manufacturing employment index decreased in June to 49.4%. 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 22,000 in July. The ADP report indicated 4,000 manufacturing jobs added in July.

The ISM non-manufacturing employment index decreased in July to 52.7%. 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 110,000 in June.

Combined, the ISM indexes suggests employment gains of about 88,000.  This suggests employment growth well below expectations.

• Initial weekly unemployment claims averaged 256,000 in July, down from 267,000 in June. For the BLS reference week (includes the 12th of the month), initial claims were at 252,000, down from 258,000 during the reference week in June.

The decrease during the reference suggests fewer layoffs in July as compared to June.  This suggests a positive employment report.

• The final July University of Michigan consumer sentiment index decreased to 90.0 from the June reading of 93.5. Sentiment is frequently coincident with changes in the labor market, but there are other factors too like gasoline prices and possibly politics.

• Conclusion: Unfortunately none of the indicators alone is very good at predicting the initial BLS employment report.    The ADP report and unemployment claims suggest stronger job growth. The ISM reports suggests weaker job growth in July.

My guess is the July report will be close to the consensus forecast.

from
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