Tomahawk, VA 10/6/2011 (PennyPayDay) – In August the net change in total non-farm payrolls was no change at all. For the first time since February 1945 and for only the second time in the history of this data series which began in 1939, non-farm payrolls were 0k on a seasonally adjusted basis. Although the figure will probably be revised away the odds of a second consecutive 0k print for payrolls must be pretty high. So, with that in mind, I won’t guess zero, but rather -1k. Additionally I will estimate, if you can call it that, that private sector payrolls will come in at +45k. Both figures are well below the average guesses, according Bloomberg, which shows the total payrolls are expected to be +55k, with the private sector adding 90k.
As is usually the case, the odds are that the street estimate will be too high, but for September that likelihood grows. Bloomberg data for payroll estimates goes back to 1997; in the fourteen year span up to last year the average estimate was higher than the actual release-day figure ten times. Market News International reports that in the last twenty five years the street has been too generous with their guess eighty-five percent of the time. So in this regard it is reasonable to look for something less than the street assumption.
The starting place for the September payrolls is +45k. According to the August statement on employment from the Commissioner of the Bureau of Labor Statistics “in the information sector, employment fell by 48,000 over the month, largely reflecting a strike by 45,000 telecommunications workers.” But, in time for the September survey week, the strike at Verizon was resolved and that means this group was back at work and will be counted as an addition to the private sector payrolls for last month.
The Verizon employees fall into the broader Service sector that accounts for 86% of the total non-farm workers. But aside from this gain from the returning strikers this sector may be a disappointment in the September jobs report. For the first time in a year the employment component of the ISM Non-manufacturing Index fell below fifty, the make or break level for a diffusion survey, down to 48.7. This index has been around only since the late nineties, but during that time frame the employment component result was sub-fifty on sixty occasions. When that happened the net change for the service sector payrolls was a negative number 60% of the time. When you remove the months that coincided with the hiring and then firing for the Census, the service sector payrolls were down 65% of the time in a month when this component was less than 50. The Non-mfg. ISM employment component has been unchanged or down on a month on month basis since May. In the last three months to August the net change in payrolls for this sector has been +13k, in the three month period preceding that the average change was +120k. The dip under fifty for the employment component may be a one off, but the recent trend for this sector is not encouraging. On the other hand the employment components of the ISM Manufacturing Index and the other industrial surveys were generally up on the month, with the exception of the Empire State report. Interestingly though the average Bloomberg estimate for the manufacturing sector payrolls was 0k.
It certainly seems that households were more in line with the service sector report than they were with the others. In September, for the first time since 1983, the Conference Board’s Consumer Confidence survey showed that fifty percent of respondents thought employment was “hard to get”; up seven and a half points since April to the highest mark in twenty-eight years. The University of Michigan Survey of Consumers noted that in September “just 10% expected declines in the jobless rate in the year ahead.” While this is only down two points from August, it was as high as 28% earlier this year and it hasn’t been so low as it is now, indicating a high degree of labor market pessimism, since March 2009, when job monthly losses were at their peak.
But, the biggest piece of the September payrolls report is Local Government Education. For Septembers the ten year average for total non-farm payrolls is +486k on a Not Seasonally Adjusted (NSA) basis. However, the ten year September average for Local Education NSA is +908k, as the teachers and other workers return from summer vacation; all other sectors combined are a net negative in September before the seasonals kick in. The dominance of this sector for this particular month could be a problem this year. Since the beginning of last year the total employment in this sector has been on a consistent slide; budget austerity combined with the end of the stimulus program funds that plugged some fiscal holes for a while. The pace of employment decline for this sector has seemingly quickened. Last September the NSA total hiring for this sector was a twenty-three year low. But when the usual summer vacation layoffs hit in full force in July, as is the tradition for the jobs data, there were more Local Education workers pinked slipped than in any other July in the fifty-six year history of the data series, even though the starting point for the number of these workers was already relatively low. It should be said that just because this sector is the biggest mover in the month it doesn’t mean that is the swing vote for the overall payroll tally. But last year the September Local Education payrolls were -55k on a seasonally adjusted basis, and after looking at path this sector has followed since then it is easy to imagine a repeat of that figure, or worse.
The key question is how many of the Local Education summer layoffs get to return in the fall. There are reasons to believe it will be a smaller group than a year ago. “A survey in May of more than 1,000 school superintendents across the country by the American Association of School Administrators found that 74 percent anticipate having to cut jobs this year,” said the Associated Press in a recent article, “with the majority of those being teachers or teacher aides. An association survey of 692 school administrators found that 48 percent laid off employees last year.” For instance, notes the AP article, “In Austin, Texas, a district with 86,000 students is hiring just 72 teachers. Six years ago, it hired 800.”
If this report is reflective of a national trend then it could be that the Local Education component of the payroll report weighs heavily on the overall figure.
To review: Verizon adds 45k, the rest of the service sector not so good, while manufacturing might add a bit to the total. But the government, in particular education, is likely to take down the total figure to something near, but not exactly, zero.