Tags: Unemployment | numbers | fall | labor-market

Labor Pain: Jobs Market May Not Be as Gloomy as Feared

Thursday, 05 July 2012 10:24 AM

INDICATOR: June ADP Job Gains/Unemployment Claims

KEY DATA: ADP: 176,000; Services: 160,000/Jobless Claims: 374,000 (Down 14,000)

IN A NUTSHELL: While Friday's employment numbers may not be great, it is beginning to look like the labor market is not nearly as weak as feared.

WHAT IT MEANS: Employment Friday is always the biggest day of the month for economic data but the appetizer for the jobs report is provided by ADP’s estimate of private-sector job gains. We got that today and it was a whole lot higher than most people expected.

Indeed, if we get anything close to the number estimate by the payroll-services firm, it will come as a major surprise given the weak May payroll increase.

The ADP report points to a strong rebound in service-sector jobs and continued gains in construction and manufacturing, although not as much as we would like to see. As usual, more than half the new hiring came from the smallest of firms, those with less than 50 workers.

Most of the rest were added by firms having between 50 and 500 employees. The largest of firms did add a few people and there seems to be some pick up in hiring at these companies.

The solid ADP report is not the only labor market indicator that is pointing to some improvement in hiring conditions. Jobless claims fell sharply though it would be nice if they were down even further.

The Challenger, June Gray and Christmas layoff survey hit its lowest level in 13 months as planned cuts were down by about 40 percent from the May levels. Add to that the employment component of the ISM manufacturing report, which indicated hiring continued at the pace we have seen for the past year and there is hope that tomorrow’s numbers may not be the disaster many economists had forecasted.

MARKETS AND FED POLICY IMPLICATIONS: There is little reason to think that the job market has suddenly turned robust but similarly there is now every reason to hope it has not fallen apart either.

The ADP number should not be taken as gospel. While it tracks the Labor Department’s official numbers over time, the monthly changes are not necessarily close.

For example, ADP thought the private sector added 136,000 new workers in May but BLS had it at only 82,000. But the point is that ADP estimates that over 300,000 new workers were added in the private sector in May and June and either they are way off or we could see some upward revisions to the May numbers and a decent June report. At least that is the hope. Of course, we will know at 8:30 a.m. Friday Eastern time so we don’t have that long to wait.

But for now, we can raise our expectations, which is what investors just might do. The economy did enter a soft spot in the spring but gasoline prices have come down sharply and that could trigger improved spending.

The healthcare uncertainty is largely over and while Iran may be talking about the Strait of Hormuz again, I will make the same argument I did the last time they threatened closure: All they want to do is raise the price of the oil they can sell. The gains from essentially declaring war on the U.S. and Europe are small but the potential costs of giving the U.S. an excuse to bomb its nuclear facilities too large for the Iranians to take any real action.

But I am not a political scientist so only time will tell what they do now that the sanctions have been put in place.

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Thursday, 05 July 2012 10:24 AM
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