Payroll Forecast: Upside Risk to September Employment Numbers

We are looking for nonfarm payrolls to increase by 235,000 for September after adding only 142,000 in August. We estimate private sector employment will expand by 225,000. Risks to our forecast are largely to the upside, given that unemployment claims have been trending lower and employment indicators for the manufacturing and service sectors are on the rise, according to surveys by the Institute for Supply Managers (ISM). Revisions could raise the average monthly jobs totals for August and September to 200,000 or more.

Construction employment should also rise, although gains remain tepid relative to the base. The same is true of manufacturing, which suffered a fairly significant downdraft (a loss of more than four million jobs) in the early 2000s before the financial crisis hit. Indeed, one could argue that the housing boom helped mask the losses suffered by less educated workers (particularly men) at the onset of the 21st century.

Some academics have argued that those men postponed education during the boom because the opportunity costs were too great so now they are much less employable; similar arguments were used to justify 25% unemployment rates during the Great Depression, but were later proven wrong.

We also have some 18,000 workers coming back who were not officially on strike but did walk off the job and disrupt a chain of grocery stores in New England. At the same time, state and local payrolls should indicate more teacher hires, though depending on the timing they might show up as revisions to August or as new hires in September. Teachers are finally being rehired after suffering draconian job cuts earlier in the recovery.

Indeed, the swing we are seeing in state and local hires is a game changer. Improving state and local coffers have taken the job situation at the state and local levels from a deficit of about 25,000 jobs per month to an increase of 10,000 or more per month. Moreover, state and local government jobs tend to be higher paying than those in the retail, leisure and hospitality sector where too many new jobs have been concentrated in recent years.

Separately, we will be watching closely to see if the upswing we’ve seen in permanent hires in business services continues. The pick-up in professional jobs, from accountants to engineers and architects, is particularly important for new college graduates and for overall wage growth. Younger workers still make up a considerable amount of slack in the labor market.

The only real negative to watch is in leisure and hospitality jobs; three casinos closed in Atlantic City last month with some 8,000 workers losing their jobs; it will likely take some time for them to find new jobs.

Bottom Line: Labor markets are showing some signs of healing, but still have a long way to go before they can be considered “healthy.” The unemployment rate is expected to hold at 6.1%. Wages could creep up a bit with a shift to better paying jobs. The Federal Reserve is looking for a sustained increase in both wages and inflation, which may not occur until unemployment falls much further than most expected.



Five Themes for the Week

I’ve written on five key themes or developments of the week just past in the international economy:

1. According to several press reports, Chinese leaders are considering the replacement of the central bank chief, Zhou Xiaochuan. Mr. Zhou is broadly seen as a reformer, who has been insisting on more liberalization in Chinese financial markets. His sacking would add uncertainty to the course of future policies Read More »


Durable Goods Better than Headline Suggests

Durable goods orders dropped at an 18.2% pace in August, reversing part but not all of the outsize gains we saw in July. A sharp reversal of the surge in aircraft orders that Boeing saw in the month of July was the reason for the decline. Motor vehicle orders were also down in August Read More »


New Home Sales Jump

New home sales jumped at a double-digit pace to a 504,000 unit rate in August after being revised up for the month of July. This is welcome news in a housing market that has been lackluster at best and underscores how picky buyers remain in this market. Realtors complain that anything that is not move-in-perfect is not selling, Read More »


Manufacturing Stays Strong for September

The Purchasing Managers’ Index (PMI) flash reading held steady at 57.9 in September, marking the end of the strongest quarter since the survey began in 2007. Employment was particularly strong in this month’s report, which will help to provide an offset to the weakness we saw in August. An improvement in both domestic economic conditions and exports were driving gains in expectations. Read More »


Investor Interest in Housing Wanes

Existing homes sales slid to a 5.05 million unit pace in August and were revised down slightly to a 5.14 million unit rate in the month of July. Losses were concentrated in the West and South, where investors had been playing an outsized role in supporting sales. All cash buyers slipped to 23% of the market, the lowest share since December 2009. Read More »


Housing Starts Dip

Housing starts fell below the one million unit threshold again in August, but were revised up slightly for the month of July. Losses were heavily concentrated in the multifamily market, which has been on a tear. The largest losses in multifamily home construction were experienced in the West, where housing shortages are the most acute. The drop in single-family home construction, which triggers more employment and spending increases, was much less pronounced Read More »


Fed on Path to Slow Exit from QE

The Federal Open Market Committee (FOMC) voted to further reduce its asset purchases by $5 billion each, which brings its current purchases of mortgage-backed securities down to $5 billion per month and its purchases of Treasury bonds down to $10 billion per month. Chair Yellen also went out of her way to reemphasize that the FOMC plans to end its current round of asset purchases at its next meeting on October 29. (That date also happens to be the 85th anniversary of the 1929 stock market crash, but I am not superstitious.) Read More »


Inflation Dips on Lower Gas Prices

The Consumer Price Index (CPI) edged 0.2% lower in August, largely on a drop in energy prices. Prices at the pump fell more than 4% alone. All of the savings at the pump is likely to be spent on food, where prices continued to rise during the month. Read More »


Industrial Production Slips in August

Industrial production fell 0.1% in the month of August, as vehicle production plummeted after an unseasonably strong July. Production figures for July were also revised down, which underscores how uneven gains remain in the manufacturing sector. Production for housing-related durables such as furniture, appliances and carpeting also fell after slightly, Read More »