Economic First Look: Reading into Unemployment Surveys

 | Dec 01, 2012 | 9:00 AM EST  | Comments
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Monday

  • ISM Manufacturing Index, 10 a.m.
  • Construction Spending, 10 a.m.
  • James Bullard, President of the St. Louis Fed (non-voter), speaks, 1:40 p.m.

Tuesday

  • Motor Vehicle Sales, released throughout the day by each manufacturer with media tally at end of day

Wednesday

  • ADP Employment Report, 8:15 a.m.
  • Productivity and Costs, 8:30 a.m.
  • Factory Orders, 10 a.m.
  • ISM Non-Manufacturing Index, 10 a.m.
  • EIA Petroleum Status Report, 10:30 a.m.

Thursday

  • Jobless Claims, 8:30 a.m.

Friday

  • Employment Situation (a.k.a. non-farm payrolls), 8:30 a.m.
  • Consumer Sentiment (University of Michigan measure), 9:55 a.m.
  • Consumer Credit, 3 p.m.

This week brings non-farm Friday. Sandy may well play havoc with the numbers, as employers may have not been able to hire or workers to apply for jobs due to power outages and weather damage. A Bloomberg survey estimates for payrolls to increase by 90,000 workers in November after climbing by 171,000 the prior month. The unemployment rate probably held at 7.9%, according to the survey. Thus, we might not get a true read this month, but let's take a look at the underlying health of the labor market in the present term, weather aside.

First, we turn to the Bureau of Labor Statistics' Job Openings and Labor Turnover Survey report. Even before Sandy, the number of job openings decreased by 100,000 from August to September, to 3.661 million. (This is the right period to examine, as job openings tend to precede hires by a month or two.)

Most categories were little changed; the category most responsible for the drop in job openings is professional and business services. This includes everything from architects and accountants to administrative workers and temps. Some workers are highly paid in this category, others not. State and local governments also posted a drop in new openings.

Normally, we would also look at layoffs to look at the health of the labor markets, but Sandy may have prompted more workers to file unemployment claims if their worksite was disrupted, or to file claims later than they would have, if the weather interfered with their ability to do so earlier. So this month, the claims have been erratic and difficult to use in a predictive fashion for the non-farm payroll report.

We can, however, turn to businesses' stated hiring intentions per surveys. There are four which are useful: the ISM Manufacturing Survey, the ISM Non-Manufacturing Survey, the Business Roundtable CEO survey (which covers large companies) and the National Federation of Independent Businesses survey of smaller companies. The data are mixed.

Employment activity in the non-manufacturing sector grew in October for the third consecutive month, according to the ISM's Non-Manufacturing Employment Index. The metric registered 54.9, which reflects an increase of 3.8 points when compared to the 51.1 registered in September. Seven industries reported increased employment, seven industries reported decreased employment, and four industries reported unchanged employment compared to September. This means that service industries plan on increasing their staffing levels, maybe not this month in particular, but soon. Still, the current reading is not overwhelmingly strong.

For manufacturing, we see that the ISM's Employment Index registered 52.1 in October, which is 2.6 points lower than the 54.7 reported in September. This is the 37th consecutive month of growth in the Employment Index. An Employment Index above 50.5, over time, is generally consistent with an increase in the Bureau of Labor Statistics data on manufacturing employment, but this is not a robust reading, either.

Having parsed the differences between services and goods-producing industries, let's dissect the data by size of firms. Big businesses plan to hire less, perhaps because they are more exposed to weak international markets in Europe and elsewhere. In the Business Roundtable's most recent survey, 29% of member CEOs expect to add U.S. employees, down 7 points from 36% last quarter; 37% expect deployment to remain steady, down 7 points from 44% last quarter; and 34% project lower employment, up from 20% in the second quarter of 2012. Thus, a net 7% plan to cut jobs in coming months according to the third quarter survey, versus a net 16% who planned to add jobs in the second quarter survey.

Small businesses plan to hire a bit more, seasonally adjusted, but not a lot more, 12% have openings for skilled workers, 2% for unskilled and 3% for both. Job creation plans remained weak, with a net 4% planning to increase employment, unchanged from September and 6 points below the August reading. Not seasonally adjusted, 10% plan to increase employment at their firm (unchanged), but 12% plan reductions (up 1 point).

Sandy or not, we can expect job gains, but even aside from the hurricane, hiring intentions are remaining less than robust no matter how you look at it. Thus, this can restrain income growth, both on an aggregate level as well as for individual workers, who might compete to retain their jobs alongside those unemployed who might offer to work for less pay. And less income growth means consumers have less money to spend, which in turn means lower revenue and tempered production. Thus, the trend of low growth remains.

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