INDICATOR: August Private Sector Jobs and July Factory Orders
KEY DATA: ADP: +428,000; Large Companies: +298,000; Manufacturing: +9.000/Orders: +6.4%; Ex-Transportation: +2.1%; Durables: +11.4%; Nondurables: +1.8%
IN A NUTSHELL: “The slowing reopening was expected to impact the labor market and that might just start showing up in Friday’s August employment report.”
WHAT IT MEANS: Displaced workers have been finding their way back onto the payrolls really dramatically for the past three months, but the ability to sustain those large gains has been called into question by the latest ADP private sector jobs numbers. The employment services firm forecast a moderate (relatively speaking) increase in employment that is well below what most economists think will print. The details in the ADP report are somewhat disquieting.
Manufacturing added few workers, while most of the gain came in the reopening of restaurants and other hospitality companies as well as in healthcare. I am not sure those sectors will continue to lead the way, or at least add as many new positions. The gains were largely in the biggest companies, especially those with more than 1,000 workers.
And finally, this was ADP’s second consecutive “weak” report. July’s was only half of the August one. It’s data show a total of 640,000 new private sector jobs added over the past two months. In July alone, the government claims that the private sector payroll increase was 1.46 million. Somebody got it wrong and it will be interesting to see who it was.
The factory sector is coming back, as we have seen with so many of the latest reports. That was true in July as new orders skyrocketed. Seventy percent of that came from reduced cancellations in the civilian aircraft industry and the ramping up of production of vehicles. Those improvements will likely continue for a while.
As for the remainder of the manufacturing portion of the economy, the gains were strong but not nearly as robust. The nondurable goods component is coming back more slowly than the durables. It could take until late fall or even early winter before output in both segments get back to where they were in February.
IMPLICATIONS: Friday’s employment report is setting up to be a very interesting one. The consensus is for about 1.25 million new jobs being added. My forecast is for 435,000 overall and 350,000 in the private sector, so I am even more pessimistic than ADP. Just call me the dismal scientist.
But I think the ADP numbers have to be taken seriously. I am not saying they have it exactly right, but it is likely that either in August or in September, we will get a really disappointing number of jobs being added. That is not being a pessimist.
If there were nearly 1.8 million jobs added in July, when the reopening process was accelerating and the enhanced unemployment payments were being made, we should be downgrading the gains pretty sharply when the process slowed significantly and millions of unemployed workers saw their checks cut greatly. Whether the impacts of those factors show up in the August or September report is unclear, but they will appear.
Data Note: Tomorrow’s unemployment claims report may look a lot different than previous ones. BLS changed the way it creates its seasonal factors and that is likely to change the magnitude of the weekly numbers. Keep in mind, the total number of claims for the year will not be affected, but the level and pattern of weekly numbers will be altered. So don’t react to the headline number. In addition, Friday’s employment report may be difficult to understand. The virus has affected the timing and the way schools at all levels are reopening. That could greatly impact the education numbers. So, look at the total, the private sector and the overall excluding education numbers, at a minimum, to get a fuller picture of what happened in August.
Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.
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