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June Employment Update: Growth Forecast On Track; S&P Valuations Rich

Chris Joseph, CFA profile picture
Chris Joseph, CFA


  • I updated my economic composite following the release of the June employment report.
  • The rise in nonfarm payroll was strongly ahead of the consensus estimate.
  • Temp employment was up from May, suggesting employers are bullish on the near-term economic outlook.
  • This year’s strength in temps continues to provide support to the economic composite's growth outlook.
  • My valuation model finds the P/E on the broad U.S. stock market remainselevated.

Economic Composite

I updated my economic composite to reflect the release of the U.S. Labor Department's employment report on July 7. The report showed an increase in nonfarm employment of 222,000 in June. The figure was solidly ahead of the consensus estimate of a gain of 170,000 as reported by Bloomberg.

On another positive note, preliminary numbers were revised upward for the previous two months. May’s gain of 138,000 jobs was revised to 152,000, and April’s gain was increased from 174,000 to 207,000. Monthly increases in nonfarm employment have been averaging a solid 180,000 through the first half this year.

Temp employment in June grew 13,000 from the previous month and climbed 4.7% year over year. The preliminary figures for May and April were essentially unchanged. Since the start of the year, the monthly gain in temp employment has averaged a healthy 4%. It's an encouraging sign that employers, in the aggregate, are seeing enough strength in their business to want to bring on temps at this pace.

The June temp number was better than my estimate of an increase of 5,000. The outperformance provides more confidence in my estimates for the rest of the year. I continue to forecast modest monthly increases in the BLS temps data series for the economic composite. As a result, the composite continues to signal economic growth for the next 12 to 18 months. I expect the composite will range from 1.5 to 3.5 through June 2018, well into positive territory. I do not expect the economy to tip into recession.

The next Labor Department report is scheduled to be released on Friday, August 4. I expect to provide an update to the economic composite shortly after the report comes out.

Figure 1 below shows the actual monthly values of the economic composite from

This article was written by

Chris Joseph, CFA profile picture
Chartwell Research is published by Chris Joseph, CFA. Chris spent over seven years managing the private market investments in one of the 20 largest university endowments in the U.S. He also worked for many years in the equity research departments of leading investment banks, including five years following companies in the staffing industry. For over 15 years, Chris has been analyzing government and private sources of employment data, which form the basis for the Chartwell economic model.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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