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Labor Market Indicators
A few labor market charts ahead of the Unemployment Report
A few quick Labor Market Indicator charts from yesterday’s data releases.
The ADP Report
The ADP Private Sector jobs report came in much higher than expected showing an increase of 497k vs. the previous month’s 267k.
The ADP report has a much narrower scope and takes a survey of 25million private sector participants. So it doesn’t necessarily predict the change in Non-Farm Payrolls, but we still think that there some linkage and a stronger ADP usually shows a stronger NFP report.
A few highlights from the report:
Increases in jobs were most prominent in smaller companies. Large companies actually cut jobs.
The largest job gain was in leisure and hospitality, followed by construction and, education & health services.
JOLTS
Next we have the JOLTs report, which showed Job Openings came in lower than expected. Job Openings declined coming in at 9.824 million in May vs. 10.32 million in April.
As we can see, Job Openings are declining but, we’re not nearly close enough to where we need to be. We still need job openings to decline by about 2millions for the supply and demand to be in better balance in the labor market.
Initial Jobless Claims
Initial Jobless Insurance Claims came in higher again. We’re now definitely seeing a longer term trend.
We see that the numbers are trending up in the longer run but, it obviously is not a smooth path. This number will have to cross 300k for us to see a meaningful change in Unemployment.
The ISM Services Number
Finally, we received the ISM Services PMI number yesterday. Overall, we saw an increase in the Services PMI that still remains in expansionary territory. But, we’re took a look at the employment change and services employment is still growing. Manufacturing employment numbers declined earlier in the week but services remain strong, in line with the ADP numbers.
As we’ve been saying, we’re watching the ISM Services Employment numbers closely. A decline in this number will lead to a meaningful change in unemployment and therefore, a decline in the core inflation number, that continues to remain sticky at this point.
Finally, ahead of today’s unemployment number we foresee the NFP numbers coming in higher than expected crossing 250k and the unemployment rate declining again to 3.6%.
If you remember, last month’s numbers had a divergence which we discussed in our labor market report in June. Here’s an excerpt from that post:
The Non-Farm Payroll (NFP) report is from the Establishment Survey and it directly samples from about 150,000 non-farm businesses (700,000 establishments) to estimate jobs, wages and hours. NFP provides estimates of jobs. May’s showed an addition of 339k jobs.
The Household Survey is also called the Current Population Survey. This directly samples from about 60,000 US households to estimate unemployment, job market status and and other measures. The scope is wider and includes paid and unpaid employment, self-employment, farm workers, and those on unpaid leave. The Household Survey provides estimates of employment status. May’s report showed a decline in jobs of 310k, increasing the unemployment rate to 3.7% from 3.4%.
Historically, the household estimate usually corrects towards the NFP data, which means the Household Survey numbers and therefore, the unemployment rate is overstated.
This is why the forecast is for the unemployment rate to decline. Morgan Stanley forecasts a much higher number for NFP but, a 3.6% rate for unemployment.
As long as the labor market remains tight, we will continue to see consumption and therefore, stickier inflation numbers. A tight labor market gives the Fed room to hike further.
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