Jack Dunn - Reclaiming Common Sense

Jobs Week Starts with the ADP Employment Report

This is Jobs Week. This Wednesday we receive the ADP Payroll Report, Thursday we receive the Weekly Unemployment Claims Report, and Friday we receive the Jobs Report, also known as the the Employment Situation Report.  The ADP report measures private sector payroll and produces only a seasonally adjusted data set. The headline "Jobs" number is the Current Employment Survey (CES) worker data. The CES data is reported in two forms: the non-farm payroll (NFP) data, which includes government sector workers, and the total private sector worker number, which excludes the government sector jobs, local, state, and federal. A problem with projecting the  ADP data is that all of the data that is published is seasonally adjusted (SA.) The CES data comes in both the SA and non-seasonally adjusted (NSA) formats. The seasonal factors used to convert the NSA data to the SA data change by data set, category, month, and year.A second problem is that the ADP data underwent a massive revision this past February after the January revision of the CES data. The January Revision to the NSA CES data shifted worker growth from 2018 back to 2016 and 2017. The February ADP revisions were even more substantial. A growing payroll trend was revised from a quickly growing economy to a slower growing economy. There are a number of ways to project the growth for this month. What should we expect?

The Rolling Year growth is looking for nearly 2.00% annual growth. The rolling year growth compares where we are with where we were the same month twelve months ago. We have seen September grow at a faster rate than August five of the past eight years. We are currently growing faster than we did during August of 2017 and are approaching the revised value for August 2016. We had been growing at over 2.00% prior to the revisions. If we grow at the same rate as we did during September 2016 (current Value) then we could see 146,000 workers added. If we grow at 1.94%, low by historic standards, that number becomes 201,000 workers. If we grow at 1.98% that number stretches to 251,000.

We should see September to September growth in all sectors. The big question is will we see growth September to September in the Information Technology sector? The largest percentage growth should be in Natural Resources, Construction, Professional Business Services, and Education and Health Services,

The August to September growth should be better than July to August was. We have seen better month to month during  September than during August five of the past seven  years. We grew at 0.13% month to month last month. This rate of growth was comparable to September of 2010. If we only grow at that rate we will see 165,000 workers added to the economy. We grew at 0.18% month to month during September of 2016. If we grow at the rate of 0.18% then we should see 230,000 workers. We have grown at a rate of 0.21% during September 2014 and 0.22% during September 2013.  We should see total growth of between 219,000 and 254,000 with the outside possibility of 275,000 to 285,000 workers added this month.

We should see growth in all sectors month to month with two possible exceptions. The two big question marks are will we see growth in Natural Resources and will we see growth in the Information sector? It is possible, not probable, that we could see a contraction in Leisure and Hospitality. The largest growth values, by percentage, are for Construction, Manufacturing, and Financial Services.

This year we are adding more workers than 2013 and slightly fewer than 2015. A similar month to month and current year process can be applied to the data from 2013, 2015, and 2018. The August month to month rate was 0.163% for 2013, 0.151% for 2015, and 1.08% for 2018. The September month to month r\growth rate was 0.17% for 2013 and 0.155% for 2015. If we split the difference then 2018 could grow at rough 0.162% this year or see the addition of 205,000 workers. Likewise, The August Annual growth rate was 1.14% for 2013, 1.06% for 2015, and 1.08% for 2018. The September growth rates were 1.24% for 2015 and 1.37% for 2013. If we split the difference at 1.30% then we could add 267,000 workers.

As with all other months, watch the revisions to the prior data. If the data from August is revised up by 20,000 that will "borrow 20,000" workers from September, dropping the range to between 225,000 and 235,000 workers. If the data from August is revised lower by 20,000 then we could see a number this month between 265,000 and 275,000.

The data is pointing towards a minimum number of 205,000 workers being added to the payroll this year, with an outlier at 146,000. The data is pointing to a high end of 270,000 with a more likely of 219,000 to 254,000. Remember that the rolling year, or trailing year, data is slower then the month to month growth rate and the Current Year growth rate. You can see from the current year growth graph that there was a dip during the final months of 2017 and 2006. The trend line for 2018 is almost  perfect straight line. The current year data is pointing higher than 205,000. Expect a number around 245,000 to 255,000.

It's the economy.