PREVIEWING THE JOBS REPORT

Another month and another job’s report on deck.  This is always the most important data point of the month and tomorrow should be no different.  Investors are eagerly awaiting some signs of thawing in the jobs market.  Analysts are not optimistic about tomorrow’s data as the surge in hiring due to Census workers is set to drag on the headline figure.  There are still 339,000 temporary workers that will lose their jobs due to this government program.  The consensus is currently calling for a decline of -70K in total non-farm payrolls with a 100K increase in private payrolls.  JP Morgan’s analysts are a bit more optimistic:

“We look for a 120,000 increase in private nonfarm payroll employment in July. Prospects for private goods producing employment in July do not look favorable.

Private service employment growth slowed in May and partly came back in June, expanding 91,000. We expect further improvement in July, led by temp help hiring. One possible support to hiring in sectors such as leisure and hospitality is the lapsing of emergency unemployment compensation, which could have caused jobseekers to lower their reservation wages sufficiently to fill some low-paying jobs. Clearly, the big drag on employment over the past few years has been weak labor demand, not weak labor supply. Nonetheless, with 3.2 million job openings as of the latest data (May), if even a small portion of these jobs are filled, the payroll number could get a lift. Another mildly favorable indicator
for private service employment is claims: initial claims moved 7,000 between survey periods and the four-week moving average declined 8,000.”

They are also expecting a near-term increase in the unemployment rate, in-line with expectations, and not a reason to be alarmed:

“The temporary expiration of emergency unemployment benefits could artificially impact the participation rate and thereby the unemployment rate. To receive benefits, individuals generally must report that they are looking for work. While the household survey of employment is completely separate from the unemployment benefits system, it stands to reason that someone who felt compelled to report to their local labor office that they are looking for work would respond similarly if a Department of Labor surveyor came knocking. That compulsion may have been lessened when emergency benefits expired. On the margin, this would lower the reported participation rate of unemployed persons and so lower the unemployment rate. But many states during the delay in extending benefits still collected claims from individuals to keep track of labor force status, assuming that benefits would eventually be extended.

This would have reinforced the tendency for people to report that they were looking for work. Through the noise described above, there are at least two reasons to look for a rise in the unemployment rate. First, the participation rate plunged in June, and a partial reversal could push the unemployment rate back up. Much of that plunge in June was in teen participation rates, where seasonal factors have a tough time adjusting teenage employment trends. That said, in past Junes when youth participation rates plunged, there was only a very modest reversal in July. The other, more plausible, factor likely to push up the unemployment rate is weak hiring: the 25,000 decline in total employment that we expect
should tend to push up the unemployment rate. On net, we look for a small rise in the unemployment rate to 9.6%, with risk of an unchanged rate.”

Other indicators of job’s growth have been at odds in recent weeks.   ISM data is showing improvement in labor markets while jobless claims have remained stubbornly high.  The Challenger Job Cut Report showed a slight increase in total layoffs this month.  The ADP report came in at 42,000 jobs while the Monster Employment Index ticked down marginally.  All in all, tomorrow’s report is unlikely to contain any big surprises.  Recent data supports marginal changes in the labor markets and the renewed uncertainty in the economy supports such thinking.