Looking skeptically at September’s unemployment rate

The unemployment rate unexpectedly fell in September by three ticks to 7.8%. Most economist had anticipated an unchanged reading or a small rise to 8.2%.

In the meantime, nonfarm payrolls rose by a muted 114,000 last month. That was generally in line with expectations given the weak economic recovery. Further, the private sector managed to generate just 104,000 jobs.

So what gives? Why the outsized drop in the politically sensitive indicator?

The unemployment rate did not decline due to discouraged job seekers leaving the job market, which has occurred in some of the prior reports.

In fact the rolls of the employed rose by an astounding 873,000 (including 582,000 part-time workers), according the the household survey!



Quirks in seasonal adjustments?
The last three years have recorded outsized gains in part-time employment September, which then washes out in October.




The BLS might want to review their statistical models.

A discouraging nonfarm payrolls report

Nonfarm payrolls rose a disappointing 69k in May, less than half what was expected; June revised downward from 115k to 77k

The unemployment rate rose from 8.1% to 8.2%.

The internals of the nonfarm payrolls number were poor.

I’m hearing some chatter that this is still weather-related payback from a mild winter?  So let’s look at some of the numbers.

· The service sector produced 218k in Feb, including 89k in professional and business services in Feb.

But in May those categories fell to 97k and -1k, respectively.

It’s hard to argue that a hiring manager in a high-rise looks out the window and checks the Weather Channel before making his/her hiring decision.

If there is a silver lining, the household survey that measures the unemployment rate showed a 422k rise in employment, but a 642k increase in the labor force produced the 0.1% increase in the unemployment rate. Pick up in June activity?

This is a volatile measure of employment and markets ignored it. DJIA futures went from -100 to -200 in the blink of an eye, and the 10-year Treasury fell from 1.53 to 1.48%.

The Fed –

This raises chatter of QE3, but the 10-yr is already near 1.5%!

If the Fed wants to get rates down, Europe and economic worries are accomplishing this. However, the action in the bond market, coupled with weakness in employment and commodities is troubling. And low rates just aren’t jump-starting growth.

That a monetary policy that focuses on asset appreciation. Still, there’s only a tenuous link between higher stock prices and consumer action. And the blunt action of Fed bond buys could reignite commodity inflation.

But if the Fed moves ahead, purchases of mortgage-backed securities may be considered, as the 30-year fixed mortgage has badly lagged the drop in the 10-year Treasury.

One last point, action in commodities and the recent “collapse” in 10-year yields is worrisome. The bond market, which does a better job than the stock market in terms of future activity, is screaming the “R” word.

Bernanke’s testimony next Thursday now becomes an even bigger market event.

Euphoria to despair–weak nonfarm payroll growth throws cold water on ADP report

OK.  That might be a bit of hyperbole on my part, but yesterday’s release by ADP showing a 157,000 jump in private-sector payrolls created a fertile climate for bullish sentiment on the Street.

But today’s report by the BLS that the economy added just 18,000 jobs in June, with 57,000 coming from the private sector, suggests the slowdown in the economy continues to severely hamper job creation.  And the reaction on Wall Street has been swift, with stocks taking a tumble, as investors run to Treasuries.

Details and a more formal look are available at Examiner.



Last week I suggested that forecasts calling for a roughly 100,000 rise in nonfarm payrolls may have been a bit too optimistic.

Weekly jobless claims have been holding in an elevated range, and there have been few signs that the economy was set to emerge from its recent soft patch.

Further, businesses have clamped down on hiring amid the slowdown and will likely keep a cautious eye on their markets before bulking up on staff.



Consequently, the nonfarm payroll numbers provided by the government more accurately reflect the recent economic slowdown in my view.

And we are unlikely to see a much-needed acceleration in hiring any time soon.

Slowing economy takes toll on nonfarm payroll growth

The economy managed to create just 54,000 nonfarm payrolls in May, less than half of the scaled-back expectations following Wednesday’s disappointing release by ADP .

The government also reported that the private sector managed to add 83,000 new jobs last month.



The lack of a significant number of new jobs, following over 200,000 private-sector additions in February, March and April, is a reflection of the slowdown in an already fragile and uneven economic recovery.

As I’ve repeated often in my commentaries, weekly jobless claims have jumped and have been holding well above 400,000, and the much slower pace of new jobs should not come as a surprise.



As the chart above reveals, the nasty recession has created a gaping hole in the labor force that is far more severe than we saw in the tough recessions that marked the mid 1970s and early 1980s.

And the shallow and uneven recovery has left many wandering in the unemployment line.



Charts 3 highlights the pace of job creation that followed the end of each of the major recessions over the last five years.



Chart 4 compares job creation during the current economic recovery with those that followed the relatively mild contractions during 1991 and 2001.

Although there has been rising chatter that the current soft patch may turn into something more ominous, the latest look at the service sector by the Institute for Supply Management out today suggests that a new recession is not imminent.

Relatively stable jobless claims, though elevated, are not signaling a new contraction either.

Slowing economy slows employment per ADP

It shouldn’t come as too much of a surprise given the recent slowdown in economic activity, as the ADP Employment report revealed that the private-sector added just 38,000 jobs last month – see details at Examiner.



May’s rise was the smallest number since last July when ADP reported the private-sector created 31,000 new jobs.

Treasuries are up, with the yield on the benchmark ten-year bond dipping below 3.0% for the first time in nearly six months, and stocks are reacting accordingly.

Economic data have been weak lately, indicating that the economy has hit a soft spot.

But Friday’s labor report will garner the lion’s share of attention, as it is generally considered the gold standard when it comes measuring the temperature and barometric pressure of the labor market.

Recent gains in employment are encouraging

But the recession created a deep hole in the job market

The Department of Labor reported that employment grew by 244,000 in April, which marks the third consecutive month that the economy has generated in excess of 200,000 net new jobs.

Adding to the upbeat tone, February and March were revised upward by 46,000.

Despite the favorable news on the employment front in recent months, the economy has failed to make a significant dent in the unemployment rate, and the total number of employed remains well below its peak.



Notably, the steep recessions of 1974-75 and 1981-82 were followed by robust recoveries, and the job market quickly recovered.

The much shallower and uneven recovery this time around has bred a significant amount of uncertainty and has delayed and slowed the rebound in the job market.



Although the recession has been over for nearly two years, the economy, which continued to lose jobs after the recession ended, just recently returned to the level of employment reached when the economy hit bottom in June 2009.

Though the improvement in job creation has been far from stellar, we can take some solace in the fact that job growth is ahead of what occurred following the mild 2001 recession.

Nonetheless, the economy appears to have hit a soft patch, which could further delay progress in the coming months. Stay tuned.

Growth in nonfarm payrolls encouraging

But more is needed

Nonfarm payrolls jumped by 216,000 in March, including a rise of 230,000 in private-sector payrolls. Further, we saw modest upward revisions to the private sector in both January and February.

March’s 230,000 increase in private-sector jobs generated by an improving economy is the second consecutive rise north of 200,000, which is the first such back-to-back increase in five years.

Given various surveys of the employment landscape, coupled with the modest drop in weekly jobless claims, it’s safe to say that the labor market is on the mend.

Still, millions of jobs were lost in the recession and more is needed to get the labor market back on track.

Most economists believe that the economy must create at least 150,000 net new jobs each month jus to absorb new entrants into the labor force.

Of course, the recession has blunted growth in the labor force, which has contributed to the decline in the unemployment rate.

Nonetheless, the expanding and broadening economic recovery is lifting job growth and I’m cautiously optimistic that a further acceleration is on tap.

The shrinking labor force and falling labor participation rate

With March’s labor report out tomorrow, a behind the scenes look at the labor force that is measured by the government’s household survey provides us with a different look at what’s happening among job seekers that we don’t traditionally see from a quick glance at nonfarm payrolls and the unemployment rate.

First, a couple of definitions are in order.  Nonfarm payrolls are calculated by the government and are released the first Friday of each month in what is called the Establishment Survey.

The unemployment rate accompanies the nonfarm payroll data but comes from a separate survey called the Household Survey.

As its name suggests, the establishment survey tallies workers and is taken from businesses and local and state governments.  The household survey, however, is a detailed questionnaire aimed at households and tells us who is working, not working and looking for employment, and not working and not looking for a job.



The chart above reveals what has happened over the last decade to the labor force – those who are working full time or part time and those who are actively searching for work but are not working – and employment – those working full or part time.

Note: Those who are retired, under 16, in prison or a nursing home, active duty, in school, or are home  because of family responsibilities are not counted in the above graph and are not in what the government calls the labor force.

The difference between the two lines gives us the number of unemployed.

As an example, the level of employment in February 2011 stood at 139,573, while the number of individuals in the labor force stood at 153,246.

The difference, 13,673, measured those who were unemployed. Divide that into 153,246 and you get the unemployment rate of 8.9%.

Simple enough? Absolutely!

What is not so simple to explain and what has puzzled economists is the steep decline in the labor participation rate, or the portion of the non-institutionalized population 16 or older that is part of the civilian labor force.

Labor Participation Rate

              (Source: BLS)

The worst recession in 70 years has clearly blunted the growth in the labor force, as some have been forced into early retirement, while others have stayed in school amid poor job prospects and still others have returned to school.

And still others, unable to find work after months of fruitless efforts, have temporarily given up the job search.  All of these factors have probably played a large role in muting the rise in the unemployment rate as well as reducing the unemployment rate to a still-high level of just under 9%.

Had the labor force continued its uninterrupted trend over the past decade, the jobless rate would now stand near 12%!

An improving economy should draw some of the discouraged workers back into the workforce, and those who have returned to school or stayed in school will eventually be drawn back into the labor force.

That should put the labor force on an upward track. Further, general population growth should also lend support.

However, recent forecasts by economists of faster labor force growth from discouraged workers returning to the job search have failed to materialize, and a lack of upward movement could present longer-term problems for the U.S. economy.

A view of the labor market from a different perspective

Nonfarm payrolls grew by 192,000 in February, which included a rise of 222,000 in private-sector payrolls.  The household survey, which gives us the unemployment rate, showed that employers added 250,000 net new jobs last month, while Wednesday’s release of the ADP employment report revealed the private sector generated a net gain of 217,000 jobs.

That’s the first time in quite a while that all the surveys lined up, indicating that the improving economic climate is finally starting to generate a reasonable level of new jobs.

Often buried in the government’s release are two pieces of data that view the labor market from a different angle.  First, let’s look at average weekly hours (chart 1).



Interestingly, the number of hours worked each week has held steady at 34.2 hours over seven of the last eight months.  At the beginning of an expansion, most firms are reluctant to hire and encourage current employees to take on added work loads.

But the interruption in the upward trend suggests that employers are beginning to plug some of their open slots from the ranks of the unemployed. It seems less likely that the lack of upward momentum in average hours works is tied to lackluster economic growth given the recent spate of data showing an acceleration in activity.



Average hourly earnings, however, has languished during the recovery (chart 2).

On the one hand, unit labor costs are well under control, and the lack of traction in wages is helping to offset the stiff headwinds caused by rising commodity prices.

In other words, we are unlikely to see a spike in core inflation since labor costs are well under control since the supply of workers available is more than adequate in most industries.

However, the lack of any meaningful increases in wages is very likely dampening the nascent rise in consumer spending.

So while it helps to keep inflation under wraps, it also has the potential to limit gains in the economy.

Nonfarm payrolls are reacting to growing economy

Still a long road ahead

Nonfarm payrolls increased by 192,000 last month, including a relatively healthy 222,000 in the private sector, suggesting that the acceleration in economic activity is finally beginning to spur a spate of new jobs. A more formal look at the report is available in my analysis at Examiner.

Before we start popping the corks on the champagne bottles, it’s important to point out that employment is finally back to where it was when the recession officially ended. So let's not obscure the fact that the road to recovery will be a long one.



Moreover, taking a look at the strong economic recoveries that followed the steep recessions of 1974 and 1982, job growth has lagged in the wake of the current recession amid the uneven and fragile recovery that ensued following the end of the current slump.



But economic activity and job growth are closely correlated (see chart below) and the recent spurt in economic activity is generating employment per various surveys, and further gains in economic activity are likely to translate into an acceleration hiring as anxiety over the durability of the expansion eases.



Of course, this outlook assumes there are not unforeseen shocks that would stifle the expansion.  As I’ve already detailed, $100 per barrel oil will not cause the economy to stall. One reason: the price of natural gas and coal, major forms of energy that heat homes and generate electricity, has been well behaved.

Finally, a quick look at the government’s nonfarm payroll data since the recession began is also encouraging. Private sector payroll growth has been slow to catch fire, but with the exception we saw in January, the direction has been encouraging.



According to the Labor Department, payroll employment has increased by 1.3 million from its low point last February, or an average of 106,000 per month.

Over the same period, private-sector employment rose by 1.5 million, or an average of 127,000 per month.
 
Modest, yes, but not enough to significantly take a bite out of the unemployment rate since economists generally agree that 150,000 new jobs are needed each month in order to handle new entrants into the labor force.

That’s why the puzzling decline of 2.4 million in the labor force over the last two years – likely related to discouraged workers – has played a big role in the falling unemployment rate.

Nonfarm payrolls lag but other measures of employment suggest labor market is healing

The recovery is finally kicking into high gear, as evidenced by much of the economic data out recently – see the latest ISM surveys and falling jobless claims, which I’ll discuss shortly. But the government’s monthly release of nonfarm payrolls has been agonizingly slow to detect that the labor market is benefiting from the improvement in economic activity.

So with the government’s labor report out tomorrow, I wanted to take some time to review what other measures of the job market have been detecting, and much of it has been positive.

As the first chart below reveals, we did see a spike in hiring earlier last year, but that was tied to the temporary jobs generated by the 2010 census, which was then followed by four months job losses as those positions came to an end.



Further, the last three months have been disappointing, despite the drop in the unemployment rate, which is derived from the household survey of families, as opposed to nonfarm payrolls, which comes from the establishment survey of companies.

Private-sector growth, however, has been more consistent but not enough to instill confidence in most job seekers.

Fewer are joining the ranks of the unemployed

Weekly jobless claims is released each week and is one of my favorite economic indicators because of its timeliness and how accurately it measures business confidence.

Falling claims tells us that fewer individuals are entering the ranks of the unemployed, but it does not necessarily suggest that firms are ratcheting up on hiring.



What it does say is that business confidence is improving, as companies choose to hang onto their employees amid an improvement in the business climate.  And an improving business climate is a key part of the hiring equation.

ADP is detecting movement

Moving along, the ADP survey of the private sector, unlike the nonfarm payroll survey, has been detecting job growth.

As evidenced by the chart below, job growth has improved in the private sector in four of the last five months in response to faster economic activity.



Nonetheless, most analysts, economists, investors and politicians want to see a confirmation from government data that a renewed vigor in hiring is at hand.

Meanwhile, the Fed Chief Ben Bernanke said in his semiannual Monetary Policy Report to the Congress on Wednesday that “we do see some grounds for optimism about the job market over the next few quarters,” including as “improvement in firms' hiring plans.”

The ISM is seeing growth

A look at the sub-components of the ISM manufacturing and service surveys does reveal that companies are in the process of ramping up hiring.

In fact, hiring among manufacturers is now at the highest levels since the early 1970s (see last chart) , while service industries, which make up most of the activity in the U.S. economy, have also been showing signs of life in recent months (see chart below). A reading above 50 suggests companies are adding employees.



In a sign that the production side of the U.S. economy is firing on all cylinders, the final chart below, which looks at data going back to 1965, provides indisputable evidence, in my view, that U.S. manufacturers are experiencing hefty increases in demand and are responding with plenty of '”help wanted signs.”



Still, the economy is dominated by the service side so it is encouraging to see the ISM services survey detect a renewed interest in bringing folks aboard.

Looking ahead, tomorrow’s release of nonfarm payrolls is expected to show that the economy generated about 180,000 new jobs. Anything just short of 200,000 would be encouraging, however, it's important to point out that forecasters have been too optimistic in recent months. To be fair, the monthly number is very difficult to pinpoint.

Still, based on the evidence that economic activity is accelerating, the recovery is broadening and surveys of the labor market are pointing in the right direction, it’s only a matter of time before the nonfarm payroll survey reflects what’s going on in the economy in my view.

Employment–the long road to recovery

The economic recovery officially began in June 2009.  Manufacturing, which was pummeled during the recession, has experienced a strong recovery, and firms involved in the output of goods have added to payrolls.

The 49,000 rise in manufacturing employment in January speaks favorably to the argument that faster growth can and will create jobs.  But manufacturing, which tends to exaggerate upward as well as downward trends in the economy, makes up only a small portion of economic output in the U.S.

The service sector, which makes up a majority of economic activity, has experienced a much slower and uneven expansion, and the fruit of such a recovery has been lackluster job growth.


Note: the fast turnaround seen after month 9 came amid the temporary jobs added for the 2010 census; weakness following week 13 came as the temporary census positions came to an end. Additionally, all annual revisions released in today’s data have been incorporated.

The chart above highlights the uncertainty we’ve been seeing in the labor market, as companies continued to shed workers for nine months after the recession ended. Only in recent months has the sluggish pace of employment growth exceeded the weakness seen following the end of the mild recession of 2001.

Adding to the misery facing many of the unemployed, the level of employment is still not back to where it was when the recession ended let alone anywhere near its former peak!



For comparison purposes, the second chart highlights the much more robust recoveries that followed the steep recessions of 1974-75 and 1981-82 and the subsequent job growth.


Moving back to the present, much of the recent data is suggesting that an acceleration in economic activity that began late last year is continuing into 2011.  And continued growth will eventually encourage employment growth.

The big question is when, and I’m still optimistic that this will occur sooner rather than later.  A look at the latest ISM employment indices reveals that most firms are beginning to create new jobs.



One thing that is certain, the latest employment data will do nothing to discourage the Fed from bumping up interest rates nor encourage the Fed to rein in its plan to buy $600 billion in longer-term Treasuries.

And don’t expect fears of inflation that have been emanating from some corners to take center stage at the central bank.

Commodity prices are at elevated levels, which the Fed acknowledged in its latest statement, but with core inflation below 1% and job growth mostly lackluster, don’t expect any additional warnings on prices, which would likely be interpreted as a signal of an impending shift in policy.

ISM provides a different look at the employment picture

Today’s report by the government that nonfarm payrolls grew by just 39,000 is a stark reminder that companies are not creating nearly the number of jobs that are needed to bring down the unemployment rate.

The government’s reports is subject to revisions, and we may see upward adjustments in January and February. In addition, the general trend over the past few months is favorable, but it seems unlikely that any changes will diverge significantly from today’s release.

However, if we look at the employment indexes that are a part of each month’s release of the Manufacturing and Non-Manufacturing Indexes put out by the Institute for Supply Management, the employment picture is not quite as bad as the government report depicts.



With a reading of 50 suggesting that firms are neither adding or detracting from overall employment, the series shows encouraging growth in the all-important service sector, which increased 1.8 points to 52.7, the highest reading in over three years.  And manufacturers continue to show interest in adding staff.

The recovery has picked up steam recently, as evidenced by the upward revision to Q3 GDP, the holiday shopping season is off to a good start and Wednesday’s release from ADP regarding private sector employment was encouraging.

Like the recovery from the 2001 recession, job growth is also likely to be uneven, meaning that it may be too much to expect a consistent upward trend in nonfarm payrolls. 

Though obstacles remain, it may be only a matter of time before nonfarm payrolls more consistently reflect the firmer tone in economic activity.

ISM Manufacturing survey reveals steady growth

ADP has best employment reading in three years

The ISM Manufacturing Index, which is a national measure of manufacturing, fell from 56.9 in October to 56.6 in November and remained above 50, which marks the line between expansion and contraction, for the 19th consecutive month.



"The manufacturing sector grew during November, with both new orders and production continuing to expand. With the PMI at 56.6 percent, November's rate of growth is the second fastest in the last six months. Exports and imports continue to support expansion in the sector,” the chair of the Institute for Supply Management said.

He added, “Prices moderated slightly during the month, but comments from the respondents express concerns with regard to pricing pressures.”

Manufacturing has been the bright spot in what has otherwise been an uneven and dull economic recovery so far.

However, recent indications suggest that the uneven recovery is beginning to broaden.

ADP report reveals favorable job trend
ADP announced this morning that private-sector employment increased by 93,000 in November, noting that the report suggests and acceleration in job creation and that “the nation’s employment situation is brightening somewhat.”

October’s originally reported gain of 43,000 was revised upward to 82,000, adding to the positive flavor of the release.

The best increase in three years, however, is not enough to bring down the unemployment rate, as ADP was quick to point out that the unemployment rate will likely hold above 9% for all of 2011.

Still, the report, which front runs the government’s labor report by two days, has lagged well behind the nonfarm payroll number for the entire year, and November’s relatively upbeat number is suggesting that Friday’s labor report might pleasantly surprise to the upside. 

At a minimum, last month’s rise is signaling that the recovery is beginning to pick up steam, as companies begin to fill vacancies needed to take advantage of improving markets.

Follow up look at retail sales – trends are favorable

Retail sales last month grew a solid 0.6%, which comes on top of upward revisions to both July and August.  Ex-autos, sales were up a respectable 0.4% last month.  And if the sometimes volatile gasoline station category is removed, which takes into account swings in gasoline prices, so-called core sales also increased 0.4%.

Despite falling payrolls over the last four months and consumer sentiment that is hovering near levels seen at the start of the recovery, spending at the nation’s retailers continues to improve.


(click to enlarge)

Sales and sale ex-autos are now up for the third-straight month, while core sales extended its winning streak to four months.


(click to enlarge)

Both charts highlight that economic activity is improving, albeit at a modest pace.

The first chart, which does a better job of illustrating the trend, reveals that the upward drift is slowly accelerating.

Rising employment and GDP growth go hand in hand

Much has been made of the fact that rising GDP has created few jobs since employment, as measured by nonfarm payrolls, bottomed at the  end of last year.  Worse, total employment remains about 400,000 below the level seen when the recession ended back in June 2009.

The problem the U.S. economy is facing is not structural unemployment, in my view, but a lack of significant economic growth, which is a byproduct of a financial crisis that was precipitated by the collapse in housing.


(click to enlarge)

The chart above measures year-over-year real GDP growth (blue line) and compares it to changes in nonfarm payrolls (red line).  Because the government releases nonfarm payrolls monthly and GDP quarterly, nonfarm payrolls are averaged in each quarter and compared with the same quarter one year ago.

For instance in the 1st quarter of 1994, GDP increased by 3.50% versus the 1st quarter of 1993.  During that same period, the average of nonfarm payrolls for January, February and March is compared to the average for nonfarm payrolls during the first three months of 1993. In this case, Q1’94 registers a gain of 2.63% over Q1’93.

Sadly, the huge loss of jobs almost seems reasonable given the severity of the 2007-09 contraction.

The 2001 recession, which was mild by historical standards, produced relatively worse losses in employment, and then was followed by a very slow recovery in the job market (see Jobless recovery).

Meanwhile, the boomerang in economic activity that ensued after the 1981-82 recession produced very robust employment growth (see chart in The recession is officially over).

Job growth will return when economic activity finally kicks into high gear. Unfortunately, the corrective action needed to spark a strong recovery in GDP has been and will likely remain elusive.

Average weekly hours, earnings reflect sluggish job market

Looking at nonfarm payrolls and the unemployment rate are two ways of measuring the health of the labor market. Less noticed but no less important are average weekly hours and average hourly earnings.

During September, average weekly hours were unchanged at 34.2 hours (see chart 1), and average hourly earnings increased by just one cent to $22.67, rising a scant 1.7% from one year ago (see chart 2).



The decline in average hourly earnings versus the period one year ago has slowed, but the lack of any significant hiring and the large pool of labor available are keeping wage increases in check.

Consequently, minor bumps in salary are hampering growth in consumer spending but is one of several factors helping to keep inflation under wraps.



Average weekly hours normally decline during a recession, just as total employment falls, because companies experience falling profits and declining sales.  In other words, firms cut hours because customers spend less money and fewer of them come through the door.

When the economy hits bottom and turns around, companies normally respond by requiring or asking current employees to work longer hours rather than beefing up staff  (chart 2 reflects such a scenario).

Why? Because most businesses don’t want to go on a hiring binge and be forced to lay off staff if the economy sinks back into a recession. Only when the recovery enters a more permanent phase does job creation accelerate. Hence, an increase in payrolls lags behind in a recovery.

This time around has been no exception, especially because growth has been lethargic.  Add uncertainty into the mix and weak consumer confidence and you have the perfect recipe for a jobless recovery.

The jobless recovery

The government reported this morning that nonfarm payrolls fell by 95,000 in September, including a 64,000 increase in private sector employment.

The chart below measures job growth during the recoveries that followed the 1991, 2001 and the current recession.  Though many were disgusted by the declaration that the current recession ended in June 2009, it does provide us with a useful benchmark.



As the chart reflects, job losses mounted for several months after the recession was officially declared over.  The total level of employment remains below – 439,000 - what it was in June 2009.

ADP reports fewer jobs in September

ADP reported that private-sector employment fell by 39,000 in September, the weakest reading since January and below most forecasts.

Clearly the drop in private sector jobs is disappointing but talk in some corners of the media that the decline may lead to falling retail sales and the onset of a new recession are premature, in my view.

Most of the economic data is pointing to a continuation of slow economic growth and not a new slump. Moreover, the ADP private sector employment report has lagged nonfarm payrolls in recent months, suggesting that the labor market may a little less gloomy than today’s number indicates.

ADP noted that the private sector has generated an average of just 34,000 new jobs each month between February and August, well below the monthly average of 107,000 private sector jobs in the nonfarm payroll survey.

Still, most economists believe the economy must generate about 150,000 jobs each month just to keep up with population growth and prevent the unemployment rate from rising.

Since the recovery officially began in June 2009, the economy has come up well short of 150,000.

Nonetheless, if the trend in private sector nonfarm payrolls continues, we are likely to see the eight month winning streak extended to nine , though gains may come up shy of the recent average.

Although we’ll have to wait until Friday before we get a more complete view of what happened last month, what does seem clear is that the summer slowdown is manifesting itself in slower job growth.
And that’s not what job seekers want to hear.

Job growth painfully slow

Each month the Institute for Supply Management releases a couple of closely-monitored surveys of both manufacturing and services.  The surveys measure many different facets of the economy, including job growth or the lack thereof.

With the September labor report out of Friday, the ISM surveys provide a glimpse as to what may happen when the report is released.

Last month employers appeared to add staff at the nation’s manufacturers, though the pace slowed.  The service sector, which makes up the biggest slice of economic activity, provided few new jobs, according to the index. 

A reading of 50 suggests neither an increase nor a decrease in employment.

The ISM employment indices cannot be used to conclusively predict what will happen when the labor reports hits on Friday.

But it does paint a broad picture of what’s going on among employers and reflects the trouble that the economy is having creating a sizable number of new jobs.