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Thursday, July 05, 2007

Employment - Pick Your Preferred Numbers

ADP releases a monthly employment report for private employment. As quoted by Bloomberg, the June report seems very, very strong indeed:
The 150,000 increase, the biggest in seven months, followed a revised gain of 98,000 in May, ADP Employer Services said.
Today's report showed a gain of 163,000 jobs among service industries. Employment at goods-producing companies, which include manufacturers and construction firms, dropped 13,000.

Payrolls at companies employing more than 499 workers fell by 4,000 last month. Medium-sized businesses, with 50 to 499 employees, added 63,000 jobs and small companies increased payrolls by 91,000.
These ADP numbers are in line with the ISM reports, so they have some backup (although ISM generally shows manufacturing to be adding employees, and this and other employment reports show manufacturing shedding employees). The answer to that is likely to be that the largest companies are shedding while smaller companies are hiring, but the losses at larger companies (which dominate manufacturing) are overshadowing growth at smaller firms. Alternatively, you could speculate that smaller companies are adding employees but that these employees are not being counted due to survey design. Either explanation could be true.

Today's initial claims report did not look good. Initial claims moved higher and the four-week running average moved higher. But at 318,000 (SA) initial claims do not look bad. However, both SA and NSA continuing claims moved sharply higher, and both of these numbers are approximately 100,000 above last year's numbers at this time. The insured unemployment rate SA and NSA both moved higher as well.

Initial claims have not been volatile lately. What does seem to be happening is that those finding themselves unemployed are having a somewhat tougher time finding another job. If the current trend continues for a few more weeks, it will be highly significant. I actually do believe that the weekly employment reports are capturing a real trend, because I wrote before of early warning signs in the monthly employment reports. Those included weakness in teen and older employment and a significant increase in involuntary part-time employment.

My guess (and it is a guess!!!) is that we are seeing weakness in retail and perhaps restaurant employment in the continuing claims report. The bulk of construction workers are contract, and do not show up in the unemployment reports.

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