Employment Situation Prediction for August 5th, 2011
Non-farms payrolls expected up 90,000; Unemployment rate believed steady at 9.2%; Weak GDP growth seen as a major obstacle
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.
Economic data has gradually worsened as the months of 2011 have passed, and at no time was that more apparent than last Friday, when total Gross Domestic Product growth since January 2012 was announced at less than 0.5%. This figure was far lower than expected, especially considering the downward revision of 1st quarter growth from 1.9% annual to 0.4% annual growth. While the 2nd quarter slowdown earlier believed to have been principally driven by supply interruptions precipitated by natural disasters, it now appears that the problems were farther reaching.
Another recent concern in the economy has been energy prices, which attracted significant attention in earlier months as the price of oil surged over $100 per barrel. This afternoon, oil sold off sharply, ending below $90 for the first time since February, as the US dollar was strengthened by the announcement that Japan will take action to weaken its currency versus the dollar. The Euro remains under significant pressure due to the continued concerns about its member nations’ sovereign debt. Worries have proliferated since July, as previously stable countries Spain and Italy have seven yields on their sovereign debt rise by hundreds of basis points in the last few weeks.
ADP released the results of its July survey of employers, saying that it believed private companies had added 114,000 positions to their payrolls in the most recent month. This is somewhat consistent with that company’s announced results last month, when it announced 157,000 jobs had been added. Last month, though, the Bureau of Labor Statistics announced only 18,000 jobs had been added, though, significantly off the figure announced by ADP. It is unlikely that 114,000 jobs is enough to meaningfully impact the current 9.2% unemployment rate.
Based on this data, my models have developed statistically significant predictions ranging from 82,000 to 93,000 jobs added by private employers. The correlation between ADP and BLS data again failed to achieve significance over the short term, and last month’s miss worsened the situation. As a result, the data derived from that method have been given reduced consideration. Last month, I believed that the ADP results might be anomalous, and I was later proven correct, although I underestimated the size of the error. That ADP shows 100,000 jobs added 2 months in a row suggests that there may be a trend starting. I have developed a prediction that tomorrow’s report will show 90,000 jobs added to private payrolls in July.
Governments are continuing to reduce employment. The most recent visible episode is the recent shutdown of the Federal Aviation Administration, which resulted in the layoff of tens of thousands of employees. Because of the reductions in government employment, the total number of jobs added in tomorrow’s report will be reduced by 25,000 positions, bringing the total to 65,000 jobs added.
The official unemployment rate climbed to 9.2% in July, and the situation hasn’t changed significantly since then. If anything, the barrage of negative news may have caused more of the long-term unemployed to give up their search for unemployment. I don’t believe this phenomenon has accelerated to the point where it will affect the unemployment rate in July. I expect the unemployment rate to hold at 9.2%.
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.