Jack Dunn - Reclaiming Common Sense

June Jobs Report Should Provide Some Fireworks this Friday


The monthly jobs report, or employment situation report, is the "most anticipated" monthly data that is released. It is released on the Friday following the ADP report release, and it is normally the first Friday of the Month. The "Jobs Report" uses two data sets, the Current Population Survey (CPS) data and the Current Employment Statistics (CES) data. The CPS data measures the workforce population, the number of full-time and part-time jobs, and the number of unemployed workers, The CES data measures the number of workers. Both data sets have seasonally adjusted and non-seasonally adjusted components. The seasonal factors used to convert the NSA data to the SA data change from data set to data set, category to category, month to month, and year to year. The CES data is revised every month. An upward revision to the prior months dta, multiple revisions will lower the current data if the prior data is revised higher and will report the data higher if the prior data is revised lower.  The ADP data and the CES data underwent significant revisions this year, as was referenced in the "ADP Payroll Forecast: June Jumping Higher for All?" Tth the he data from 2015, 2016, and 2017 for both the ADP Payroll data and the CES data were massively revised after the first of this year. They borrowed from 2018 to boost the 2016 and 2017 data. We need to watch the growth rates and the seasonal factors used this month.

Expect June 2018 to be better than June 2017 and May 2018. The trend has been upward on an annual basis, even with the massive revisions to the 2016 and 2017 data. Some months have been "barn burners," such as February. We should grow at a rate faster than June 2017, which means a minimum growth of 122,000, and we should grow at a rate in excess of May 2018, a rate of 1.90%, so we should exceed 230,000 workers added this month. Most June growth rates are in excess of 2.00% and have reached as high as 2.53 during June 2015. It's amazing what data revisions can do. That said, do not expect the June to June growth rate to blast through the 2.00% level this month. A seasonally adjusted private sector number of 240,000 to 280,000 is possible. 

The Non-Seasonally Adjusted Number could smash through 1 million workers, again. We add workers  "every June." We often add over 900,000 workers, most of whom are seasonal workers, and can add 1.0 million or 1.1 million workers, non-seasonally adjusted, during the month of June. We added almost 1.1 million workers during June 2016, a pre-election surge of political workers is probable, and we added almost 1.1 million during June of 2017.

The Seasonal Factors used to convert the non-seasonally adjusted data to the seasonally adjusted data is scatter-shot during June. A higher seasonal factor skews the seasonally adjusted data higher than it would be reported with a lower seasonal factor, and a lower seasonal factor skews the seasonally adjusted data lower than would be expected. Some months we see a trending lower seasonal factor or a seasonal factor that trends higher year over year. 

The monthly growth rate has been fairly consistent  during the month of June. The growth rate swings wildly from a -2.00% drop during January to a gain of nearly 1.00% during April or June of most years. The "peak" monthly growth often happens during wither April or June, as employers ramp up for Memorial Day or the Fourth of July. Will we see a monthly growth with am "0.8" in front of it? Possibly. Where will this growth rate hit when combined with the season factor? The probability here is that we will fall  somewhere around 0.85% and the SA CES will fall between 192,000 and 311,000. There is significant overlap between 240,000 to 280,000 so anticipate a number around 250,000.

Watch the revisions. If the data from last month is revised higher by 25,000 then this month will be "lowered" by 25,000. The same is true in reverse. Watch the difference between the non-farm payroll number and the private sector worker number.

Government jobs get "goofy" during the summer, as do Education and Health Services Jobs. All sectors should rise month to month except for these two super sectors. All sectors should rise June to June. The question mark here is Information Technology. This lines up well with the ADP data. 

Pay attention.

The Second half of the report focuses on the Current Population Survey Data. June is an interesting month for hires and fires. The Continuing Claims Unemployment data has been falling during the middle of June for a number of years. The U-3 Unemployment levels tend to rise during June.  Full-time jobs tend to rise during June and part-time jobs almost always fall during June.  What can we expect this month.

We are expecting workers to surge during June. Could Full-time jobs jump by 900,000 or 1 million or 1.1 million full-time jobs this month, non-seasonally adjusted? Yes. Could we lose 600,000 or 700,000 or 800,000 part-time jobs this June? Yes. Is it possible that even as we add nearly a million non-seasonally adjusted CES workers that we could lose net jobs?  Yes. The two data sets are different sizes and measure different things. The Current Population Survey (CPS) data, or Household data, measure jobs, the Current Employment Statistics (CES) data or Establishment Data, measures workers. It is possible, as happened during 2012, 2016, and 2017, that we could lose net jobs. The Jobs streak is an Economic Urban Legend. President Obama's "Job Streak" was a "worker" streak, and was a seasonally adjusted worker streak.

The Seasonally Adjusted Jobs Data could go negative during June - This is "Normal." The Jobs streak would never have been created if they used the SA CPS data instead of the SA CES Private Sector Worker Data. It also would not have happened if they hadn't massaged the seasonal factors. It is easier to massage the data than to change the message. The SA Combined jobs data was negative during June. 2011. 2013, 2015 and 2016

The Non-seasonally Adjusted U-3 Unemployment Level could rise. How can the unemployment rate level rise as the continuing claims data falls? Those who claim unemployment have lost a job. Those who are U-3 unemployed may be searching for a job after losing a part-time time, and may not be receiving first-time claims or continuing claims benefits.  We Normally see peak unemployment during January with a second, lower, peak during July. Normally the Unemployment Rate bottoms during October.

The Seasonally Adjusted Unemployment data could rise, as well. There were some individuals claiming that the historically low level of unemployment, rate and real numbers, could stay at last month's level. The NSA U-3 would have to rise by fewer than 450,000 people in order for the SA U3 value to fall.

Participation tends to peak during July after rising during June. We have seen a divergence between the declining Participation rate curve and the declining participation curve since then end of 2016. This column wrote an article stating that the January 2017 could have been recorded even lower than it was recorded if the population had not been revised downward during January. If there is a seasonally adjusted increase in unemployment and a seasonally adjusted jump in jobs, or if the jump in unemployment offsets the drop in seasonally adjusted job loss then the seasonally adjusted participation rate should improve from last month's value. 

The devil is in the data. These regular swings in employment and unemployment is why the "official" jobs report data is the seasonally adjusted data. How could you explain CES worker gains and CPS job losses? How could you explain away declining weekly unemployment claims and an increasing number of unemployed workers? The takeaway here is that NSA Workers will rise,  NSA U-3 Unemployment will Rise, We should see a spike in Seasonal FT Jobs, we could see an uptick in NSA PT jobs, although that number should decline as PT jobs are temporarily upgraded to FT jobs and as some people hire new Summer workers. People who can't find work, who may not have had work recently, will say that they are looking for work and unable to find work.   

More analysis will come after the report is released. The increase in "all sectors" mean that Men should continue to increase their full-time job numbers. Women should also see FT and PT jobs improve.  This will be analyzed after the data is released on Friday. The preliminary look at the multiple job holder data is that we should see a drop in multiple job workers, a drop in dual part-time workers, and a decrease in workers who work a FT and a PT job,  and while we see a spike in the number of FT FT workers. Another topic that will be addressed is the wage growth that is expected to continue. The Average weekly wage should continue to improve as people work more full-time jobs. This point is being missed by most observers.  The growth in hourly rates, in part due to supply and demand and in part due to changes in the minimum wages in various states,  and the growth in hours worked, mean higher earnings should be recorded.  Also, we are seeing growth in Manufacturing Jobs, Mining/Logging Jobs, Construction Jobs, and Professional Business Services Jobs, four of the highest paying CES sectors. The effects are multiplied. We should see more wage inflation. How is President Trump doing compared to his predecessors? That will be addressed in the "Five Presidents" series. We know that he has added more full-time jobs than any of his predecessors at the same point in their Presidencies, and he should add more full-time jobs. 

Enjoy the fireworks tonight. Enjoy the fireworks tomorrow. Where some red, white and blue. There will be no column tomorrow. There will be two articles released on Thursday with the release of the ADP Payroll Report and the Weekly unemployment claims report. Friday is the Jobs Report.  Good News should be recorded, will it be reported?

It's the economy.