Anticipating the Employment Report for July

July 30, 2014

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With the Q2 GDP report now history, attention will focus on the Friday employment report from the Bureau of Labor Statistics. This monthly report contains a wealth of data for economists, probably the most publicized in the near term being the month-over-month change in Total Nonfarm Employment (the PAYEMS series in the FRED repository).

Today we have another curious pair of July estimates: 218K new nonfarm private employment jobs from ADP and a much larger 306K total new jobs from TrimTabs.

The ADP 218K estimate came in below the Investing.com forecast of 230K for the ADP number.

The Investing.com forecast for forthcoming BLS report is 230K nonfarm new jobs (the actual PAYEMS number). The Briefing.com PAYEMS consensus is 220K new jobs and their own estimate is for a higher 250K.

Here is an excerpt from today’s ADP report:

“Although down from June, the July jobs number marks the fourth straight month of employment gains above 200,000,” said Carlos Rodriguez, president and chief executive officer of ADP.

Mark Zandi, chief economist of Moody’s Analytics, said, “The July employment gain was softer than June, but remains consistent with a steadily improving job market. At the current pace of job growth unemployment will quickly decline. Layoffs are still receding and hiring and job openings are picking up. If current trends continue, the economy will return to full employment by late 2016.”

Here is the press release from TrimTabs:

“Employment growth this month was the highest since May 2010, when census-related hiring skewed the data,” said David Santschi, Chief Executive Officer of TrimTabs Investment Research. “The economy has created an average of 205,000 jobs per month this year, nearly double the 115,000 jobs per month in the same period last year.”

TrimTabs’ employment estimates are based on analysis of daily income tax deposits to the U.S. Treasury from the paychecks of the 140 million U.S. workers subject to withholding.

In a research note, TrimTabs explained that its estimate of job growth is consistent with a range of other indicators. The TrimTabs Macroeconomic Index accelerated in the past two months, the employment indices of the Institute for Supply Management’s Manufacturing and Non-Manufacturing Surveys are in expansion territory, and unemployment claims data has turned more encouraging.

TrimTabs reported that wage and salary income has been rising roughly 4% year-over-year in real terms in July, up from 2.5% y-o-y on June. A precise figure for July will be available at the end of the month.

“Employment growth is more than sufficient to keep pace with population growth, and the unemployment rate has been trending lower, so we see no reason to expect the Fed to deviate from its plan to end its bond purchases by October,” said Santschi.

Here is a visualization of the three series over the previous twelve months along with the latest ADP and TrimTabs estimates.

A key difference among the three is that the ADP and the BLS series, unlike the TrimTabs data, are subject to substantial revisions. Also, as I point out in the chart above, ADP tracks private employment, TrimTabs tracks all salaried US employees, and the BLS series is for Nonfarm Payrolls.

For a sense of the critical importance of nonfarm employment for the economy, see my Big Four Economic Indicators, which I will be updating shortly after the employment report is published.