Here's my brief outlook for tomorrow's employment situation report.
Let's compare various data out there to last month's data to get an idea of what to expect. Last month's official BLS statistics were 200,000 jobs created for the month overall, 212,000 private jobs and a nicely improved unemployment rate of 8.5%.
This is a job creation report generated by employment services giant ADP. It is estimated based on statistics from ADP's clients. It covers private jobs only. Note that the ADP report is often very different from the BLS official report and its accuracy is always under suspicion, although improving.
- December: 325,000 (revised 292,000)
- January: 170,000
- Overall comparison: Large Deterioration
ADP's strong report last month echoed a strong employment report although not to scale. This month points to job expansion, but at a much lower pace. Seasonal adjustment variations will come into play here.
Challenger Job Cut
A report generated by sifting through and categorizing various announcements of layoffs. It covers both public and private. I find it to be one of the more useful intra-monthly employment reports.
- December: 41,785
- January: 53,486
- Overall comparison: Large Deterioration
Breaking the trend of lower layoffs, Challenger reports many job cuts in services, especially retail. Curiously, these are supposedly not related to the ending of the holiday season, but rather cost cutting and store closings. This is a very bad sign for this month's report.
ISM Manufacturing And ISM Non-Manufacturing Indices
These are reports that survey manufacturing and service firms on many topics from orders to pricing to employment in their company. The respondents rate each category and a consensus is created with above 50 indicating expansion and below 50 indicating contraction. Employment outlooks are included, and the same scale used.
- ISM manufacturing employment decelerated to 54.3 from 55.1 although still expanding
- ISM non manufacturing has not been released yet
- Overall comparison: Breakeven
- The ISM Manufacturing report shows manufacturing hiring but not at the pace of last month
Weekly Initial Claims
This government report details the number of initial jobless claims that are filed every week. It is a good leading indicator of employment, and the data is quickly available. However, it's best to have an average to make it the most effective.
- Last Month Average: 373,250
- This Month Average: 375,750
- Overall Comparison: Slight Deterioration
The weekly data are still coming in at lower levels than a few months ago, but are not improving now. This also bodes poorly for the report.
The one bright spot of this report, construction spending blew past estimates again, improving 1.5% over last month. Construction is one of the traditional first movers in employment out of a recession but has lagged in this recovery. Construction is an excellent driver of employment.
The U.S. economy may be in for a slowing period, in my opinion. After having data turn up several months in a row, reports are cooling off. Retail sales looked sluggish for December and January and energy costs are rising. Manufacturing, still the best part of the economy, is expanding, but not at the pace it was. Economic recovery and expansion is often a game of "two steps forward and one step back," and this month looks like one of the those backward steps to me.
As far as employment, the data here almost unanimously points to a softer month for hiring after last month's binge. The weekly claims have leveled and even slightly increased. Challenger shows a lot of announced layoffs, and mostly structural rather than seasonal ones. I'm anticipating gains in manufacturing and construction, but I think services and government will prove weak.
With this in mind, as well as the data above, I expect a very slight improved employment situation report tomorrow. I'm guessing the overall non-farm payrolls will increase by about 80,000 and the private sector will be around the 100,000 range. The headline number will probably stay flat but may increase this time around to 8.6%.
Expect some worry and hand wringing over this report, and keep this in mind for your investments.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.