Economic First Look: Focus on Employment

 | Oct 29, 2011 | 8:45 AM EDT
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  • Chicago PMI, 9:45 a.m. (all times EDT)


  • FOMC Meeting Begins
  • Motor Vehicle Sales, released by each automaker throughout day with media tally in afternoon
  • ISM Manufacturing Index, 10:00 a.m.
  • Construction Spending, 10:00 a.m.


  • Challenger Job Cut Report, 7:30 a.m.
  • ADP Employment Report, 8:15 a.m.
  • EIA Petroleum Status Report, 10:30 a.m.
  • FOMC Meeting Announcement, 12:30 p.m.
  • Fed Chairman Press Conference, 2:15 p.m.


  • Chain Store Sales, released by retailer in morning with media tally thereafter
  • Jobless Claims, 8:30 a.m.
  • Productivity and Costs, 8:30 a.m.
  • Dennis Lockhart, President of the Atlanta Fed (non-voter), speaks, 8:30 a.m.
  • Factory Orders, 10:00 a.m.
  • ISM Non-Manufacturing Index, 10:00 a.m.


  • Employment Situation, 8:30 a.m.

While Friday's non-farm payroll report will dominate this week's focus, before we discuss that report, I do want to bring your attention to some other data points this week that also merit scrutiny.

Chronologically, take a look at the ISM data on Tuesday. The Philadelphia Fed manufacturing measure and the Empire State survey are a bit at odds with each other, with one showing growth and the other showing contraction.

The Chicago PMI (which just measures manufacturers in the Midwest) will shed further light on the manufacturing sector on Monday, as a lead-in to Tuesday's ISM data. Bear in mind, though, that this is a sentiment survey and a diffusion index -- it does not measure output or employment in dollars or people. It does not tie in directly to GDP, corporate profits or other measures. Still, it is very helpful when assessing the manufacturing sector, which, I might add, is 11% of the economy -- plus, this report can (and often does) move the markets.

Obviously, the FOMC meeting is of utmost interest, as FOMC members seem as divided as ever on the direction of monetary policy. I discussed some of this in my column, "Don't Be So Accommodating," so I'm not going to dwell too much on this topic here.

I will say, though, that recent economic data seems to have been a bit better than expected, and I will be paying close attention to the degree to which the Fed believes this alters their views any. Of course, looking specifically at third-quarter GDP, its growth of 2.5% is still too weak to bring down unemployment. With growth of the labor force of about 1% and productivity gains of existing workers of about 2% or so, we need at least 3% GDP growth just to keep unemployment from rising. To bring down unemployment by a full percentage point, we need to see real GDP growth of about 4% to 5% for a full year, depending on the hours-worked function.

Forecasts for GDP growth beyond the most recent quarter do not show it expanding by anywhere near that rate nor even by the rate it expanded in the third quarter, as I discussed in my column, "Parsing the GDP Data."

This leads to a discussion of the Employment Situation report. There's a few ways to look at what we might expect, but I tend to focus a bit on a previously released report, also from the Bureau of Labor Statistics, which is the JOLTS (Job Openings and Labor Turnover Survey) report. This gives us a sense of how many job openings there are that might get filled.

Of course, we also have to consider those leaving their jobs for any reason to arrive at the net number of jobs created. The weekly Jobless Claims data tell us how many people are being laid off, which does help in that regard, but layoffs don't tell us the whole story, as layoffs are only one way in which people find themselves unemployed. Still, the initial unemployment claims data show no clear trend over the past month, basically bouncing around a bit above the 400,000 mark. Some economists believe that readings below 400,000 signal sustained, notable job gains, but we are not yet there.

Now, back to the JOLTS report. The number of job openings as of the last business day in August was 3.056 million, down from 3.213 million in July. (This is the most recent data, and it is actually the time frame that we want to examine, since it takes a month or two to fill those openings.) This is the first decrease in the number of job openings since April, and recall that June's payroll report saw only 20,000 new jobs created. (May's figure was 53,000 new jobs created.) So, there is a big chance that this week's payroll report could also be similarly weak, since the declines in job openings in both August and April were of roughly similar magnitude. Various survey data from multiple sources (both of consumers and businesses alike) also correspond to weak hiring.

Like I said, though, it's not just those who are hired; it's also a function of those who leave (voluntarily or otherwise). Voluntary quits for the month of the payroll report are next to impossible to determine in advance. (The JOLTS report does cover these, but the data are as of August and are too dated for our purposes of handicapping the employment report.) So, the data we have so far can only tell us so much, and recognizing the limits of forecasting a specific number, I'm not really expecting a gangbuster employment report this month.

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