This week is jobs week. Not Steve Jobs–last week was his, with blowout Apple earnings and the announcement of the slick new iPad. Real jobs–remember those? Where people actually get to go to work and earn a paycheck.
This week’s data include the ADP report, today’s initial unemployment claims number and Friday’s payroll employment report along with several other reports (ISM manufacturing, ISM non-manufacturing, and factory orders) that give further color on the subject. Add them all together and what do you get? Blah! Positive but crappy growth–not enough to meaningfully increase employment. That will still have to wait for the banks to start lending to small businesses. And no, they haven’t started yet.
The ADP National Employment report, released yesterday, estimates that January nonfarm private employment fell by 22K jobs, the smallest drop since January, 2008. 19K of the 22K lost jobs were at large firms; small ones did better (-3K). Goods producers lost jobs (-60K); service companies added jobs (+38K). Manufacturing lost 25K jobs, the smallest in two years. Take this with a grain of salt, however. ADP reports have overstated the Labor Department’s estimate of private payroll job losses by 500K in last six months of 2009.
Friday’s employment report is likely to show no loss, or even a small gain of 10K jobs or so. That’s better than getting poked in the eye with a sharp stick but don’t expect any parades. That’s because on Friday the Labor Department is also going to release one of their strange revisions for the year from April 2008 to March 2009. It’s going to be a whopper. They will report that March 2009 employment was actually 824K lower than they had previously reported.
The culprit is the faulty business birth/death model the Labor Dept. uses to correct for a bias in their data collection method. They collect establishment employment data by calling a list of known businesses. That list shrinks over time by attrition, however, as some companies die from natural causes. Others came into business too, of course, but they didn’t get the phone call because the Labor Dept. doesn’t know who they are, which would tend to make the job numbers shrink even if employment didn’t. So they “correct” the data by assuming that, more or less, the births offset the deaths causing them to add a fudge factor (+55K jobs/month from April 2008 to March 2009) to the data to make up for the missing new company jobs.
Unfortunately, it doesn’t always go that way. Shockingly, more companies die during recessions that are born (duh). So they are going to take all those fudge factors out in tomorrow’s number. Hence, the -824K revision. But wait, as they say on the infomercials, there’s more. This revision only takes us up to last March. The Labor Dept. gurus added another +900K in fudge factors in the months since then.
Confused yet? (I certainly am.) Bloomberg has a very elegant and easy to understand graphical explanation of this on their website. The real issue, of course, is how many people will understand all this when the number is released at 8:30AM EST tomorrow morning. My guess is not all of them will, which is not good news for tomorrow’s stock prices.
Take all this together and you get a picture of an economy that is growing, but not by enough to light the job market on fire. As this week’s ISM Manufacturing and ISM Non-Manfacturing reports show, the strong recovery in manufacturing has not yet shown up in the service sector. I don’t think that can happen until the banks are open for business again later this year.
JR
