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Preview: Employment Report for October


Friday at 8:30 AM ET, the BLS will release the employment report for October. The consensus, according to Bloomberg, is for an increase of 240,000 non-farm payroll jobs in October (range of estimates between 200,000 and 282,000), and for the unemployment rate to be unchanged at 5.9%.

The BLS reported 248,000 jobs added in September.

Here is a summary of recent data:

• The ADP employment report showed an increase of 230,000 private sector payroll jobs in October. This was above expectations of 212,000 private sector payroll jobs added. The ADP report hasn’t been very useful in predicting the BLS report for any one month, but in general, this suggests employment growth slightly above expectations.

• The ISM manufacturing employment index increased in October to 55.5%. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll jobs increased about 10,000 in October. The ADP report indicated a 15,000 increase for manufacturing jobs in October.

The ISM non-manufacturing employment index increased in October to 59.6%. A historical correlation (linear) between the ISM non-manufacturing employment index and the BLS employment report for non-manufacturing, suggests that private sector BLS non-manufacturing payroll jobs increased about 330,000 in October.  Note: There are only a couple of previous readings this high for the ISM non-manufacturing employment index – so this might be high.

Combined, the ISM indexes suggests employment gains of 340,000.

• Initial weekly unemployment claims averaged close to 287,000 in October, down from 295,000 in September. For the BLS reference week (includes the 12th of the month), initial claims were at 284,000; this was up from 281,000 during the reference week in September.

This suggests about the same low level of layoffs in October as in September.

• The final October Reuters / University of Michigan consumer sentiment index increased to 86,9 from the September reading of 84.6. This is frequently coincident with changes in the labor market, but there are other factors too – like sharply lower gasoline prices.

• On small business hiring: The small business index from Intuit showed a 15,000 increase in small business employment in October (up from 10,000 in September).

• Trim Tabs reported:

TrimTabs Investment Research estimates that the U.S. economy added 314,000 jobs in October, up from 206,000 in September. … TrimTabs’ employment estimates are based on analysis of daily income tax deposits to the U.S. Treasury from the paychecks of the 140 million U.S. workers subject to withholding.

• Conclusion: Below is a table showing several employment indicators and the initial BLS report (the first column is the revised employment). A few key points:

1) All but one of the revisions this year have been up (average about 21,000).

2) Unfortunately none of the indicators below is very good at predicting the initial BLS employment report.  

3) In general it looks like this should be another 200+ month (based on ADP, ISM, unemployment claims, and small business hiring).

There is always some randomness to the employment report.  And we have to remember that September employment was boosted by a one time factor (returning workers from a strike in August).
The consensus forecast is pretty strong, but I’ll take the over again (above 240,000).

Employment Indicators (000s)
ISM Weekly
Jan 144 113 175 236 329 10
Feb 222 175 139 -6 334 0
Mar 203 192 191 153 323 0
Apr 304 288 220 NA 320 25
May 229 217 179 130 327 35
Jun 267 288 281 NA 314 20
Jul 243 209 218 NA 303 15
Aug 180 142 204 285 299 0
Sep   248 213 NA 281 10
Oct   Friday 230 340 284 15
1Lower is better for Unemployment Claims

Calculated Risk

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