It looked like August’s unemployment report would celebrate this year’s Labor Day in a big way. We know it because most employment indicators point to many more jobs this year that also pay more. Starting with the August ADP survey, the estimate for private payroll growth is 204,000, whereas predictions for the Labor Department’s report was 230,000 nonfarm payroll jobs, with most of those jobs in the higher paying Professional Services category (up 160,000 in August, according to ADP).
But, alas, today’s Labor Department report showed just 142,000 net nonfarm payroll jobs created, far below the estimates, while the unemployment rate barely fell to 6.15 percent. But stay tuned for revisions, as the seasonal adjustments were draconian (payrolls rose 327,000 July-August before seasonal adjustment), so the ADP report may turn out to be a more accurate portrayal of August employment. And monthly payrolls have increased to 215,000 in 2014, vs. 194,000 in 2013 on average.
Graph: Calculated Risk
Then there is the best predictor of employment. The ISM Purchasing Manager’s service industry report registered 59.6 percent in August, 0.9 percentage point higher than the July reading of 58.7 percent. This represents continued growth in the Non-Manufacturing sector, which is the largest business sector. The August reading of 59.6 percent is the highest for the composite index since its inception in January 2008. The Non-Manufacturing Business Activity Index increased to 65 percent, which is 2.6 percentage points higher than the July reading of 62.4 percent, reflecting growth for the 61st consecutive month at a faster rate. This is the highest reading for the index since December of 2004 when the index also registered 65 percent.
The New Orders Index registered 63.8 percent, 1.1 percentage points lower than the reading of 64.9 percent registered in July. The Employment Index increased 1.1 percentage points to 57.1 percent from the July reading of 56 percent and indicates growth for the sixth consecutive month.
And manufacturing growth is very strong based on the ISM manufacturing index where the composite index jumped to 59.0 from 57.1 in July, which also means more job creation. New orders headline August's strength, rising to an exceptional 66.7 vs an already very strong 63.4 in July. Production is at 64.5, vs July 61.2, with employment steady and strong at 58.1 vs 58.2.
Lastly, the Labor Department’s latest JOLTS report of job Quits and Hirings is telling us the number of job openings continues to grow. Jobs openings (yellow line in graph) increased in June to 4.671 million from 4.577 million in May and are up 18 percent year-over-year compared to June 2013. The number of Hires (blue line) rose to 4.8 million from 4.7 million, the highest since 2006.
We therefore see a falling unemployment rate for the rest of this year. It could be as low as 5.5 percent come December, as more return to the workforce. This is turn will continue to boost incomes and so economic growth, as consumers are able to spend more. This is a terrific way to celebrate this year’s Labor Day. .
Harlan Green © 2014
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