Jobs: More Losses Likely in August
The slow, steady erosion of the U.S. labor market in recent months looks set to continue in August. Action Economics expects the government's employment report for the month, scheduled for release Sept. 5, to adhere to the pattern of small but persistent average monthly declines of 66,000 in nonfarm payrolls thus far in 2008, as indicated by both our own estimate of a decline of 70,000 and economists' median forecast of a 73,000 decline.
We similarly assume sideways patterns in the remaining major components of the report: The unemployment rate should hold at 5.7% (median 5.7%), average hourly earnings should rise 0.3% (median 0.3%), and the average workweek should hold at 33.6 hours (median 33.6). The mix of payrolls by industry should continue to show declines led by goods-producing industries, with restrained gains in service sector employment.
The Sept. 4 release of the August ADP Employment survey (delayed because of the Labor Day holiday) will help to clarify the risks for the government report. But, given the enormous recent over-performance of the ADP figures relative to payrolls, any surprise will again prove hard to interpret. Since November 2007, the average ADP figure has outperformed the corresponding private payroll figure in the government's jobs report by 102,000 per month. For the three years prior to November 2007, the ADP survey underperformed private payrolls by a fairly persistent 13,000.
A Jump—for Now
The weekly initial jobless claims data and continuing claims have been affected by auto retooling in July, and now the Emergency Unemployment Compensation program in August. As such, we would caution against reading much into the jump in initial or continuing claims over the past five weeks. For the record, however, initial claims in the survey week—the week when the Bureau of Labor Statistics gathers its data for the month's jobs report—rose to 432,000 in August from 372,000 in July and 384,000 in June, while the average reading has risen thus far in August to 437,000 vs. 406,000 in July and 388,000 in June.
The Michigan Consumer Sentiment survey and the Conference Board survey have both bounced in July and August, with gas prices finally subsiding following the spectacular run-up through the first half of the year. The Michigan survey in June fell to the lowest level since May 1980, while the Conference Board survey dropped in June to the lowest level since March 1992. The bounce in July and August, led by the expectations components, still leave these series at historically depressed levels that have only been seen previously in recessions. And, the current components, which tend to be more driven by labor market activity, fell further in both surveys. As such, the figures are still consistent with a weak labor market tone.
The employment components from the various factory sentiment surveys have mostly bounced in August, though to levels that remain lean. The Empire State employees index rose to -4.5 from -6.3, while the workweek rose to 1.1 from -8.4. The Philadelphia Fed index employees index rose to -1.1 from -7.3, while the workweek rose to -11.8 from -12.5. The Chicago-PMI employment index dropped to 39.2 from 45.9, however.
Small but Persistent Declines
The Institute for Supply Management's manufacturing employment index fell to 49.7 in August vs. 51.9 in July. The ISM nonmanufacturing employment component rose to 47.1 in July from 43.8 in June, but we won't get the August reading until Sept. 4.
In total, we expect the August payroll figures to extend the pattern of small but persistent declines evident since the beginning of 2008. The figures should again prove weak enough to prevent the Federal Reserve from significantly altering the risk assessment at its Sept. 16 policy meeting, and we see little risk of a policy change prior to the Nov. 4 U.S. elections.
Yet, the report should also refrain from showing sufficient weakness to prevent Fed hawks from continuing to highlight inflation risks in public discourse and at each of the next two pre-election policy meetings. Pressure on Fed policymakers to take back at least some of the jumbo easing moves from earlier this year will build as the year comes to a close.