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Employment Situation Prediction for July 8th, 2011

Non-farms payrolls expected up 110,000; Unemployment rate expected steady at 9.1% as manufacturing growth slows

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.

2011 has been characterized by a gradual worsening in the character of released economic data. While growth in 2010 was at its strongest in several years, GDP growth in the 1st quarter of 2011 declined to 1.9%. Economic growth was further questioned as that quarter drew to a close with the natural disasters in Japan and New Zealand, and the resultant interruption in supply of intermediate goods and raw materials. A spike in petroleum prices further threatened growth. It was thus unsurprising that manufacturing data, especially, retreated as May arrived. No where was this more noticed than in the Philadelphia and Empire State Manufacturing Indexes.

Oil prices have declined since then, principally driven by recent strength in the dollar relative to other currencies, especially the Euro. Still, at over $98 per barrel, oil prices have risen faster than nominal inflation, and the dollar is under pressure from the Euro again. While the immediate situation in Greece has been resolved, and while. if not so large,Portugal’s situation is at least as dire, threats on the stability of the currency remain, which have made the dollar more attractive. Threats against the dollar have not been completely eliminated, though, due to the ongoing debate regarding the US Treasury’s borrowing limit, which could severely damage the dollar’s strength.

ADP today released the results of its survey of employers, saying that it believed 157,000 positions had been added to private employer payrolls in June of 2011. This represents a quick reversal in employment, and is nearly high enough to be sufficient to lower the unemployment rate from its current 9.1% level. June’s growth, though is still well below the level of improvement seen in the first few months of this year.

Based on this ADP data, my models have produced reliable predictions ranging from 134,000 to 165,000, with most indicating highest confidence at approximately 140,000. The correlation between ADP and BLS data still failed to hold over the short term, although it has shows signs of improvement. As a result, data obtained using this method have been given reduced consideration. In spite of these figures, I believe that the ADP results may be anomalous, and have thus tempered my own predictions. I have developed a prediction that tomorrow’s report will show 130,000 total jobs added to private payrolls in June.

Governments are continuing to reduce employment, with no greater evidence of this the shutdown of the state of Minnesota that is currently in its 6th day.  Because of the impact of government employment reductions, government employment will reduce total employment gains by 20,000 positions to 110,000 jobs added total.

The official unemployment rate rose to 9.1% in May, as, in spite of meaningful increases in employed residents, even more previously discouraged workers returned to the labor force. I believe that the opposite effect will be seen in June, as the volume of negative news likely caused more workers to give up their searches. Due to this decrease in the labor force, the unemployment rate is expected to decrease to 8.9%.

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.

July 7, 2011 by · Leave a Comment

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About Dan

I have worked as a residential mortgage advisor since February of 2000 and a part of the founding team here at Province Mortgage. We believe that by doing right by a family today, we can create a relationship for life, and, hopefully, and ambassador who will share the experience with others. It is our team of professionals that helps us to create this experience.

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