July Payroll Playbook

The July Employment Report from the BLS will be out on Friday. ADP has released its employment reports for July already. Let's take a look starting with The ADP National Employment Report.

Nonfarm private employment increased 9,000 from June to July 2008 on a seasonally adjusted basis, according to the ADP National Employment Report®. The estimated change in employment from May to June was revised up from a decrease of 79,000 to a decrease of 77,000.

This month’s employment gain was driven by growth in the service-providing sector which advanced 74,000. July employment in the goods-producing sector declined 65,000, while manufacturing employment declined 49,000, marking their twentieth and twenty-third consecutive monthly declines, respectively.

Two sectors of the economy hit hardest by recent problems in mortgage markets have been residential construction and financial activities related to home sales and mortgage lending. Today’s report suggests some lessening of the recent strain on employment in these industries.

In July, construction employment dropped 16,000. Though this was the twentieth consecutive monthly decline, and brings the total decline in construction jobs since the peak in August of 2006 to 350,000, it was one of the smallest declines in recent months. In addition, employment in financial activities rose 4,000 during the month.

Small Business Report

The ADP Small Business Report offers continuing evidence of the weak employment situation. Here are the Nonfarm Private Employment Highlights.

• Total employment: +9,000
• Small businesses: +50,000
• Medium businesses: -9,000
• Large businesses: -32,000
• Goods-producing sector: -65,000
• Service-providing sector: +74,000
• Manufacturing industry: -49,000

Small businesses represent payrolls with 1-49 employees
Medium businesses represent payrolls with 50-499 employees
Large businesses represent payrolls with more than 499 employees

July Is A Revision Month For BLS

Looking ahead to the report on Friday, it important to consider that January and July are revision months for the BLS. Guessing at what the Birth/Death Model revision will be is certainly fraught with danger, but I am going to go out on a limb anyway.

My guess the Birth Death revision will be -425,000 and the actual reported jobs number for July will be -178,000, with unemployment rising to 5.7%. If the jobs number is negative, it would be the 7th consecutive monthly contraction. These are the kind of guesses that can make one look silly but there they are.

I am also anticipating the first outright contraction in the service sector even with the strength that ADP is reporting in small businesses. Whatever that strength is, I expect it to be flooded by losses this month and next given this June 25th report: U.S. Retail Store Closures Are Flirting with Six-Year High.

Bankrupt home furnishings retailer Linens 'n Things' disclosure this week that it plans to dispose of 120 locations is the latest burst in the retail sector's growing flood of store closings this year that has the industry's real estate disposition firms scrambling.

Home Depot (HD) recently said it would shut 15 existing stores this year and reduce the number of new store openings by almost half to 55. Then the Hilco Organization and Gordon Brothers Group, new owners of Sharper Image, announced that they will close all 86 of the chain’s remaining stores. And, Gap Inc. (GPS) plans to close an unspecified number of stores while downsizing many of its remaining locations.

“You are going to see a lot more closings; we are not even close to the end,” says Graiser. “There are a few thousand more stores” coming on the market.

On top of that report Starbucks (SBUX) recently announced it will cut 600 stores. Looking ahead, note that Bennigan's Is Bankrupt, Faces Chapter 7 Liquidation.

In light of the above, I would expect the treasury market to react favorably to the jobs data (assuming of course my predictions don't look silly on Friday morning).

Comments

[garsonvonah:]

Lots of burger flipping, picking strawberries and changing bedsheets jobs out there. Nothing wrong with these at minimum wage.

2008 Jul 31 05:38 PM

[debtacid:]

Can we slide this in under the wire?

SACRAMENTO -- Gov. Arnold Schwarzenegger today ordered his administration to lay off thousands of part-time state workers and to work with the state controller to temporarily slash the pay of most full-time employees to the federal minimum wage of $6.55 an hour.

2008 Jul 31 07:37 PM

[Thomas J. G...:]

debtacid: that's funny, thank you. I'm really disappointed in Arnold. When Milton Friedman died he went off the deep end. California badly needed someone to say "this is what we can afford". He could have been that person but didn't do it. The Terminator blinked.

... Flash

2008 Jul 31 08:18 PM

[gabe borens...:]

Untill the unemployment data reflects recession ,it should be considered a constructive data.The economic deceleration is not an issue, by now it is accepted .The real dilemma is that untill now most experts accept the notion that we are in recession.This notion is built into the current market levels.Unemplyment to be a bad news for the market ,would have to reinforce recessionary presumption reflected in the market price structure and the record open short interest(untill recently).
As I have stated many times ,we are making a major bottom in the market - cyclically ,the U.S is ready for rebound.There is no need to scrutinize montly releases.The major trend is what matters.

2008 Jul 31 09:01 PM

[Alex Sebastian:]

Gabe, while I see your perspective and recognize it's validity, I am unconvinced that the economy is necessarily set to turn around. The stimulus checks have been spent and there is no more debt the consumer can pile up to kickstart the economy. With the average American having negative net worth, I find it difficult to see where the stimulus will come from that will restart the economy.

2008 Jul 31 10:46 PM

[Jason Rines...:]

Agree with Alex Gabe. Big business will continue offshoring, the poor get subsidies (45% of all Americans on some form of gov't assistance) and the Middle Class are squeezed hard between inflation and lack of investment from banking and investment community. Not to mention predatory utilities and soon big tax increases (3 years out). Arnold did the right thing in California. If the party has stopped for 97% of the population then so it must for government spending. Any spending in 2009 should (and I believe it will) be spent on infrastructure such as energy, roads and telecommunications. This will create the necessary skilled jobs to prop the economy but it's a process that takes years. I repeat my forecast, next Bull market is in 2013.

2008 Aug 01 12:01 PM

[REBEL:]

Hey IThinkBig; "Next Bull Market in 2013" ??? - are you kidding us? You should lay off that guvment Kool-Aid.

2008 Aug 01 06:39 PM

[moonbat1775:]

Rebel,

If Ron Paul is elected in 2012, think what an economically sane President could do.

2008 Aug 02 07:34 PM