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Posts Tagged ‘payrolls’

Monthly Job Growth Almost Never Exceeds 400K

July 1st, 2010 Michael McDonough Comments off

Historically, payroll growth rarely exceeds 400K in any given month, even in the best of times, not good news considering the US has lost 8mn jobs since the start of the recession. Some analysts have discussed a best case scenario where payrolls rise by 1mn a month, bringing us back to the pre-recession peak within eight months, however, in reality this is a near impossibility. Since 1939 there has been only one instance of monthly job growth above the million mark, and as it turns out that stellar number was caused by 700,000 AT&T workers returning from a 22 day strike–meaning far fewer than 1mn jobs were in reality created. In a much more likely scenario where payroll growth averages 200K a month it would take over three years to return to the pre-recession peak; this figure doesn’t even count population growth that has taken place during that period. The attached chart breaks down the frequency of monthly payroll gains and losses from 1939 to now, and certainly doesn’t paint a rosy picture for the labor market.

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Categories: Labor Market, US Tags:

Initial Jobless Claim’s ‘New Equilibrium’ Can Benefit Payrolls

May 6th, 2010 Michael McDonough Comments off

As tomorrow morning’s employment report approaches I wanted to take a quick look at the relationship between the four week moving average of initial jobless claims and the change in payrolls. As a general rule of thumb significant sustained job growth cannot occur until claims move below 400K. However, in March payrolls grew at 162K, while initial claims 4wk moving average remained well above the break-even point at 448K. Since then the average has increased to 459K, yet the consensus forecast is for job growth in April of 190K, with more upside risk than down.

So what happened, has the long-standing relationship gone kaput? In actuality the relationship between claims and payrolls has been rather dynamic throughout its history. Over the past decade the magic number has been 400K (as can be seen in the chart below), but looking at data from only the 1990’s the break-even point was much closer to 430K. It is possible that in this ‘new economy’ the break-even point for claims has once again begun to shift–in favor of bigger payroll gains. Nomura U.S. economist, Zach Pandl, recently highlighted this possibility in a report to clients titled ‘450 is the new 400’. In it Zach said, “Despite these historical patterns, we believe that, today, a weekly claim level of 450,000 is in fact consistent with positive job growth because of structural changes in the labor market.” He accredits this phenomenon with relatively low separations due to reduced quitting and fewer layoffs, which in turn creates higher levels of net hiring. I tend to see some upside for employment over the short-term; however, I still believe monthly gains ex-census will moderate as the year progresses. The current consensus forecast for the change in private payrolls is +98K for April. 

Unprecendented productivity gains continue to place pressure on hiring, with the prelminary Q1 reading coming in at 3.6%, compared to a consensus forecast of 2.6%.  For more reading on productivity and hiring please see this piece:  ‘U.S. Companies Investing in Technology Faster than Hiring’

Initial Jobless Claims 4wk MA(x-axis) Vs. Change in Payrolls (y-axis) 2000-Present

Source: Department of Labor

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Payrolls Indicate to Markets; Strong Labor Recovery Not Just Yet

April 2nd, 2010 Michael McDonough Comments off

Payrolls moved up by +162K in March, compared to a forecast of +184K.  Combined January and February revisions totaled an additional 40K jobs created.  March added 48K census workers making the ex-census change in payrolls a modestly strong +136K.  It is impossible to determine to what extent weather had on this report, but I expect payrolls should maintain modest growth, at best, over the next several months (ex-census).  The unemployment rate remained steady at 9.7%, as the workforce continues to increase.  This report is essentially neutral for the market.  Long term unemployment continued to tick up, while average hourly earnings fell -0.1% from last month.  Hours worked remain relatively low at 34.0%, and will likely move up a bit more before we see a big turn in hiring.  While overall these modest gains are positive, it is unlikely it will have a significant effect on Fed policy over the short-term.

On another note, temp employment continues to tick up, however, it has begun to come off of its recent highs.  This index tends to be a good forward looking indicator toward the overall payroll number:

Source: BLS

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Temp Employment Pointing Toward Robust Payrolls

March 5th, 2010 Michael McDonough Comments off

Non-farm payrolls fell -36K, handily beating the latest consensus forecast of -68K. The unemployment rate was steady at 9.7%.  The market can expect some volatility from government census worker hirings over the months ahead.  The effect should be positive for the next couple months, but eventually turn negative as these workers are let go.

One of the bigger surprises in the report was a +1,000 increment in manufacturing payrolls, versus and expected decline of -15,000. Manufacturing’s is a much smaller portion of the U.S. economy compared to years past, but still holds much of the economy’s cyclicality.

Looking at temp employment, one of my favorite leading indicators toward payrolls, we can see a strong upward trend beginning in September 2008.  As the chart below illustrates, temp employment, the white line, began falling well before total payrolls, the white line,  during the recent economic crisis.  But, since September temp employment has begun to surge.  Temp employment growth could eventually lead to a jump in total payrolls, as companies who are optimistic, yet uncertain, about the future tend to hire temps before actually filling full time positions.  Temps are also the first employees to be let go as companies become pessimistic, yet uncertain, about the future.  284K temps have been hired since September’s low.

Total Payrolls (orange line) vs. Temp Employment (white line)

Source: Bloomberg

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Jobless Claims Hit a Roadblock

February 25th, 2010 Michael McDonough Comments off

What had been an improving trend in initial jobless claims has hit a roadblock with claims rising this morning to by 22K to 496K .  Recent volatility can be attributed to everything from weather to a backlog of claims in California, but in the end still points to further deterioration for the monthly employment report.  Typically, initial claims would need to fall to a level below the 400K to in order to support gains in non-farm payrolls.  Prior to December most believed this would be a reality in the near-future, but with claims now struggling to move below 450K the market will have to wait.

Unfortunately, the same bad weather that impacted claims in February will likely have a similar impact on the month’s payroll data.  In January payrolls declined by -20K, and I expect this decline will be even greater in February.  I expect the market will need to wait yet another month before receiving data supporting a nascent recovery for the labor sector.

Initial Claims vs. Unemployment Rate

Source: Bloomberg

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Payrolls Fall Hard in December, But Revised to Positive in November

January 8th, 2010 Michael McDonough Comments off

December non-farm payrolls fell 85k, compared to a consensus call of no change. November payrolls were revised to +4k from -11k this was the first increase in payrolls since December 2007.  December’s unemployment rate remained at 10.0%, in-line with consensus.  Hourly earnings in December rose +0.2%, in-line with consensus.

Manufacturing  payrolls declined -27k, falling for the twenty-fifth consecutive month, but this was actually slightly better than consensus, which anticipated a -35k drop in manufacturing jobs.   Temp employment continues to rise, which typically is a good forward looking indicator toward employment. Also, I should note, roughly -25K to -30K of the -53K jobs lost in construction could have been due to adverse weather during December.

The bottom line is accommodative monetary policy is here to stay (at least over the next several months), and the employment situation will continue to be a headwind for housing and consumer spending–hence growth.  I still anticipate that payrolls will not bottom until 2Q09, after which it will experience a very gradual recovery.

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Non-Manufacturing ISM Goes Back Above 50, But Barely

January 6th, 2010 Michael McDonough Comments off

The December non-manufacturing ISM came in at 50.1 versus 48.7, a month prior.  The Bloomberg consensus forecast was 50.5 with estimates ranging from 48.0 to 52.1.  The all important employment index finished December at 44.0 versus 41.6 in November.  The prices paid index remained well above 50 coming in at 58.7 from 57.8.  The standalone business index moved into expansionary territory with a reading of 53.7 compared to 49.6, reported last month.  The new orders index, which tends to be a forward looking component fell to 52.1 from 54.5 a month prior–reaching a four month low.  This could add to some weakness in the months ahead.

The non-manufacturing ISM’s employment index’s rise to 44.0 from 41.6 in November is unlikely to have a significant impact on forecasts for Fridays non-farm payrolls.  However, combining this morning’s ADP employment report, indicating a payroll decline of -84K, and the fact that the non-manufacturing ISM employment index is still well below 50 the probability of positive payrolls is marginally reduced.

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ADP Report May Point to Improved Non-Farm Payrolls

January 6th, 2010 Michael McDonough Comments off

The ADP Employment Report indicated a decline of 84K in private sector payrolls in December , compared to a revised drop of 145K a month prior November. This is the lowest level of declines since March 2008.  It is unlikely this release will impact Friday’s forecast for no change in non-farm payrolls.  Over the past six months the ADP report has generally been under-performing non-farm payrolls, so the fact that ADP has improved could imply further improvement for December’s payrolls.  The non-manufacturing ISM’s employment index at 10:00AM should provide additional hints towards Fridays non-farm payroll outcome.

This chart demonstrates how the ADP report has generally underperformed non-farm payrolls since July.

ADPSource: St. Louis Fed

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Categories: Data Release, Labor Market, US Tags: ,

ISM Could Bode Well For Payrolls

January 4th, 2010 Michael McDonough Comments off

The manufacturing ISM rose to 55.9 from 53.6 in November. Looking at the components the Prices Paid Index rose to 61.5 in December from 55.0, while New Orders jumped to 65.5 from 60.3 in November. But, the big story may be in the Employment Index, which climbed to 52.0 in December from 50.8. This result could bode well for payrolls on Friday, especially if confirmed by the non-manufacturing ISM’s employment index and the ADP employment report.

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Categories: Data Release, GDP, US Tags: ,

Payrolls Decline by -216K, Unemployment Rate Moves Up To 9.7

September 4th, 2009 Michael McDonough Comments off

Payrolls in the US fell by -216K in August compared to a revised decline of -276K in July, and a consensus forecast of -200K.  The unemployment rate for the month increased to 9.7% versus 9.4% a month prior, and a consensus forecast of 9.5%.  The decline in payrolls continue to moderate, but an increase in the labor force caused the unemployment rate to rise from 9.5% to 9.7%.  9.7% is the highest unemployment rate since 1983, and the US economy has now lost jobs for 20 consecutive months.  Equity markets gave up pre-release gains on the news, but have since begun to show signs of renewed strength.  I still anticipate that given sustained, albeit slowing, increments in the unemployment rate it will top 10% prior to recovering.  This data also indicates that the employment sector continues to face strong headwinds, and a consumer lead recovery remains highly improbable.  But, it is important to keep in mind that increments in employment tend to be a lagging indicator of an overall economic recovery.

Source: BLS

Source: BLS

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