Philadelphia Fed Gauge Points to Soft Payrolls: Chart of the Day

Stagnant hiring by manufacturers in the Philadelphia region is signaling June U.S. payrolls will be weaker than projected, according to Jack Ablin.

The CHART OF THE DAY shows the Federal Reserve Bank of Philadelphia’s employment index plunged to a 23-month low of minus 1.3 in May from 17.9 the prior month. It registered a reading of 1.8 in June and averaged 6.7 over the past 12 months. Readings of zero are the dividing line between expanding and contracting workforces.

The relationship between the Philadelphia Fed’s measure and the Labor Department’s jobs count implies payrolls in the U.S. climbed by 43,000 workers in June, according to an analysis by Ablin and Jeff Weniger of Harris Private Bank. The median forecast of economists surveyed by Bloomberg News calls for a 90,000 increase. The report is due tomorrow at 8:30 a.m. in Washington.

“It’s showing more disappointment on this continued downtrend in jobs,” said Ablin, who oversees $60 billion as chief investment officer at Chicago-based Harris. “This is a longer and more persistent problem.”

Fed policy makers may be forced to do more to boost employment growth and shore up the world’s largest economy, even after expanding their Operation Twist program on June 20 to extend the maturities of assets on its balance sheet. The economy added 69,000 jobs in May, the fewest in a year, and the unemployment rate unexpectedly climbed to 8.2 percent from 8.1 percent, its first increase in 11 months.

If confirmed by tomorrow’s report, the Philadelphia Fed’s measure would prove to be a more useful gauge of the current labor market than the Institute for Supply Management’s national index. The Tempe, Arizona-based group said this week its factory index fell to 49.7, worse than the most-pessimistic forecast in a Bloomberg News survey, from 53.5 in May, the Tempe, Arizona-based group’s report showed today. Figures less than 50 signal contraction.

The ISM’s measures of orders, production and export demand dropped to three-year lows. Its employment gauge has been little changed over the past two months, hovering near April’s 10-month high.

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