Employment Situation Prediction for June 3rd, 2011
Non-farms payrolls expected up 115,000; Increase in discouraged workers to continue driving unemployment rate
A meaningful correlation exists between the ADP Private Payrolls report and the Bureau of Labor Statistics monthly Employment Situation Report. I have used data from the past 5 years reports to develop a prediction for tomorrow’s Employment Situation Report.
While economic data in January and February suggested continued strong economic growth, the direction of that data began to turn in March, as war and natural disasters pressured commodity prices and interrupted material supplies. This trend continued in April, as elevated oil prices raised questions the cost of oil would itself impact economic growth. Those concerns began to play out in May, as several significant economic activity surveys, including the important Philadelphia and New York Fed surveys, showed a sharp decline in underlying economic growth. In addition, weekly claims for unemployment benefits have climbed significantly, a disturbing trend as it could eventually impact hiring.
While oil prices have moderated slightly, the price of oil, currently $100 per barrel, remains at a high enough level that it could continue to impair economic growth. A significant contributing factor in high oil prices is the weakness experienced by the US dollar in currency markets, which directly impacts oil prices because most oil is paid for and purchased in dollars. The dollar is not expected to strengthen in the immediate future given questions about the level of US Treasury debt and the significant supply of currency that has come about due to recent Federal Reserve stimulative measures.
ADP released the results of its survey of employers, saying that it believed 38,000 private payroll jobs were added in May, 2011. This represented a sharp decline in employment growth, and is a low enough gain that it could likely result in a meaningful increase in the unemployment rate, especially if discouraged workers resume their employment search. It also interrupts a period of over 5 months of greater than 170,000 jobs added.
My models produced reliable predictions ranging from 35,000 to 161,000 private payroll jobs added in May, with a higher confidence range between 100,000 and 130,000. The correlation between ADP and BLS private payroll data still failed to hold true in the short term, but it did continue to move closer to signficance. As a result, data derived from that method were given reduced consideration. I have developed a prediction that tomorrows report will show 130,000 private payroll jobs added in May.
Governments are continuing to cut employment, which is dragging on overall jobs creation. These cuts will lower total job additions to 115,000 for May.
The official unemployment rate rose to 9.0% in April, as some discouraged workers did return to the labor force. I had previously predicted the unemployment rate would be moving higher because of returning workers. That will not be a meaningful contributor to tomorrow’s unemployment rate; rather the decline in jobs growth will be a more important factor, and that will cause the official unemployment rate to increase to 9.1% for May.
Dan Hartman is a Senior Mortgage Advisor with Province Mortgage Associates of Providence, RI, and has more than 10 years experience in the mortgage industry. He also serves as an Adjunct Professor of Finance and Economics with Roger Williams University and the University of New Haven. Extensive data was researched and compiled by Thomas Khoudary of Providence College.