July Employment Preview

On Friday at 8:30 AM ET, the BLS will release the employment report for July. The consensus is for an increase of 190,000 non-farm payroll jobs in July (with a range of estimates between 150,000 to 215,000), and for the unemployment rate to decline to 3.9%.

The BLS reported 213,000 jobs added in June.

Here is a summary of recent data:

• The ADP employment report showed an increase of 219,000 private sector payroll jobs in July. This was well above consensus expectations of 173,000 private sector payroll jobs added. The ADP report hasn’t been very useful in predicting the BLS report for any one month, but in general, this suggests employment growth above expectations.

• The ISM manufacturing employment index increased in July to 56.5%. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll increased about 16,000 in July. The ADP report indicated manufacturing jobs increased 23,000 in July.

The ISM non-manufacturing employment index for July will be released tomorrow.

Initial weekly unemployment claims averaged 214,500 in July down from 224,500 in June. For the BLS reference week (includes the 12th of the month), initial claims were at 208,000, down from 218,000 during the reference week in June.

The decrease during the reference week suggests a stronger employment report in July than in June.

• The final July University of Michigan consumer sentiment index decreased to 97.9 from the June reading of 98.2. Sentiment is frequently coincident with changes in the labor market, but there are other factors too like gasoline prices and politics.

• Merrill Lynch has introduced a new payrolls tracker based on private internal BAC data. The tracker suggests private payrolls increased by 236,000 in July, and this suggests employment growth above expectations.

• Looking back at the three previous years:

In July 2017, the consensus was for 178,000 jobs, and the BLS reported 209,000 jobs added.

In July 2016, the consensus was for 185,000 jobs, and the BLS reported 255,000 jobs added.

In July 2015, the consensus was for 212,000 jobs, and the BLS reported 215,000 jobs added.

In general it looks like the consensus is frequently low for the month of July.

• Conclusion:  In general, these reports suggest a solid employment report, and probably above expectations.  The ADP report, the reference week for unemployment claims, and the Merrill payrolls tracker all suggest a stronger report in July than in June.   So my guess is that the employment report will be above expectations in July.

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