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Surveys vs. Data: Employment Estimate 160k

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    October 4, 2013

    One of the potential casualties of the government shutdown is that the Bureau of Labor Statistics will be closed and will not issue its employment report for September.  However, all is not lost as ADP issued its employment report for September which showed an increase of 166,000 which was shy of the 180,000 consensus.  Historically speaking, going back to 2001, the average difference between the numbers of jobs reported by ADP is 21,992 less than what is normally reported by BLS.  For example, in August, ADP reported 113,926 jobs whereas BLS reported 136,133 for a difference of 22,206.   The tendency of this difference since the beginning of 2012 has been closer to 22,200.

    Therefore, if we use this average we can solve for what the jobs number for September from the BLS is most likely to be.  For the month of September ADP reported total employment of 114,092.  If we add the 22,200, the recent tendency of the difference, then the BLS report should be close to 136,293 which would equate to a monthly increase in payrolls of 160,000.   The current consensus range is 155,000 to 240,000 – so a print of 160,000 would be well below consensus and a bit of a disappointment.  The chart below shows the historical difference in the reports with the current estimate for the BLS report for September included.


    If my estimate is correct then this poses a question with regard to the recent sentiment surveys from the Institute of Supply Management and the various regional Federal Reserve regional manufacturing surveys.  These surveys have all shown elevated increases in both current employment and, more importantly, future intentions to hire which theoretically should translate to stronger economic growth in the next few months.

    The chart below is the STA Employment Composite, which is the employment component from a majority of the Fed Surveys, Chicago ISM, Chicago Fed National Activity Index, ISM indexes and the NFIB Small Business Survey, as compared to jobless claims (inverted scale).


    As you can see over the last couple of months the employment index has jumped sharply from the sluggish start at the beginning of 2013.  However, there are two important things to note:

    1) While the monthly reports have certainly improved; the overall trend of the data is still negative; and

    2) The recent “pop” in the data is NOT inconsistent with historical bounces in the data when spurts of short term activity occurs.

    The chart below is the STA Composite Economic Index which is comprised of the same data sets as the employment index above.  As you can clearly see there has indeed been a jump in economic activity in recent months from the sharp slowdown at the beginning of 2013.  However, current improvement is well within the context of the downtrend in growth that started in 2011.


    If the recent data is suggesting stronger economic and employment growth ahead; it will be critically important the data continues its current rate of improvement.  Unfortunately, the current government shutdown, the upcoming debt ceiling debate, higher interest rates and energy costs and slower economic growth in the Eurozone and China will be substantial drags on economic recovery for now.  This is why the Federal Reserve recently ratcheted down their growth forecasts and have kept their current bond buying programs in full force as they realize that the risks that lay ahead.

    The disconnect between the sentiment surveys is likely to reversed sharply in the months ahead as expectations of stronger economic growth fail to appear.  With earnings already deteriorating, earnings warnings at levels not seen since 2001 and plenty of “Drama Island – Washington” to increase market volatility – it is likely to continue being a bumpy ride from here.

    Images: Flickr (licence attribution)

    About The Author

    Lance Roberts – Host of StreetTalk Live

    After having been in the investing world for more than 25 years from private banking and investment management to private and venture capital; Lance has pretty much “been there and done that” at one point or another. His common sense approach has appealed to audiences for over a decade and continues to grow each and every week.

    Lance is also the Chief Editor of the X-Report, a weekly subscriber based-newsletter that is distributed nationwide. The newsletter covers economic, political and market topics as they relate to the management portfolios. A daily financial blog, audio and video’s also keep members informed of the day’s events and how it impacts your money.

    Lance’s investment strategies and knowledge have been featured on Fox 26, CNBC, Fox Business News and Fox News. He has been quoted by a litany of publications from the Wall Street Journal, Reuters, The Washington Post all the way to TheStreet.com as well as on several of the nation’s biggest financial blogs such as the Pragmatic Capitalist, Zero Hedge and Seeking Alpha.