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US July Employment Report: A Preview

Today, the BLS will publish July Employment report and it will give more details regarding the labor market situation. The Bloomberg consensus expects nonfarm payrolls to decrease by 10K in July to 185K and unemployment rate to reach 7.5%, down from 7.6% in June.

 

My conviction is that nonfarm payrolls could be above the consensus in a context where most of proxies suggest better labor market conditions (in line with Fed comments):

 

1/ (+) During the survey period (2nd week of July), the four-week moving average of initial claims decreased from 348.5K (2nd week of June) to 346.5K.

 

2/ (-) On the same period, continuing claims rose from 2987K to 3003K.

 

3/ (+) “Employment” component (Hard to get a job minus Plentiful) of the Conference Board rose from -25.8 in June to -23.3 in July.

 

4/ (+) The ISM manufacturing employment index increased in July to 54.4 from 48.7 in June confirming the trend recorded by the regional surveys (New York, Philadelphia, Dallas…)

 

5/ (+) The ADP employment report showed an increase of 200,000 private sector payroll jobs in July up from 198K in June. Prior ADP Employment Change revised higher from +188K to +198K.

 

6/ (-) Online advertised vacancies dropped 92,200 in July to 4,888,100, according to The Conference Board Help Wanted OnLine (HWOL) Data Series just released.

 

7/ (+) Gallup’s seasonally adjusted U.S. unemployment rate for July is 7.4%, a slight decline from 7.6% in June.

 
These data sent positive signals as hirings in the manufacturng sector could rebound in July. My feeling is that the climate was again milder in July which could be a boost both for catering, leisure and also construction. Moreover, government hirings could stabilize with improving public finances. As a consequence, I expect a slight improvement in nonfarm payrolls and a number above the consensus.

Tourism Boosted Hiring in Spain

The number of officially jobseekers (not seasonally adjusted) in Spain dropped significantly by 127 248 people or 2.6% to 4.76 million in June, the Labor Ministry said Tuesday. It was the fourth straight month of declining job claimants and the steepest in one month since comparable statistics began in 1997. Spain’s State Secretary for employment said:

 

“Never has registered unemployment fallen so much in a single month”

 

Note that corrected for seasonal variations, the number of unemployed people rose by 996 to 4.88 million. Yet, government and financial markets used to focus on the raw figures.

 

These data bolster government claims that the Spanish growth is finally turning the corner.

 

More from Businessweek:

 

Spain’s unemployment dropped in June at the start of the peak tourism season, with the Prime Minister Mariano Rajoy predicting the trend will continue as the worst economic slump in the country’s democratic history comes to an end.
 
The number of people registering for jobless benefits fell by 127,248 from May to 4.76 million, the Labor Ministry in Madrid said today in an e-mailed statement. That is the sharpest decline on record for a month of June. Economists had predicted a decline of 100,000, according to the median of 5 forecasts in a Bloomberg News survey.
 
Spain, with an unemployment rate of 27 percent, is home to almost a third of all the people out of work in the euro region.
 
Economy Minister Luis de Guindos last month said Spain will see a durable improvement in employment as rising exports help haul the euro-area’s fourth-largest economy out of its second recession since 2008 in the three months through September. The Bank of Spain last week said indicators suggest the recession is abating after seven straight quarters of contraction. Exports rose to a record last year, while the country in March posted its first trade surplus since at least 1971.
 
Still, the nation’s current account swung back into a deficit in April, and households’ wage income fell 8.5 percent in the last quarter from a year earlier after a labor-rules overhaul helped companies to cut payrolls.

French Consumer Confidence at All-Time Low, Unemployment at All-Time High

French consumer confidence reached an all-time low in June as consumers are more pessimistic than ever about their future living standards, data show on Thursday morning.

 

Consumer confidence, which came in three points below analyst expectations of 81 and far below a long term average of 100, was the lowest since records began in 1972, data from statistics office Insee showed.

 

These data suggest that the euro zone’s second-largest economy (20%), hit by lagging trade competitiveness and a new recession, will not be supported by its traditional driver which is domestic consumption.

 

More from Insee:

 

In June, households’ opinion about the expected general economic situation in France slipped. The corresponding balance kept decreasing, as it had been doing since January (–2 points with respect to May), and reached a new historically lowest level. Furthermore, their opinion about past general economic situation decreased again (–2 points), thus reaching its lowest historical value of October 2008.

 

The consumer confidence indicator has been worsening in parallel with jobless numbers, which edged up to a new all-time high of 3,264,500, labour ministry data showed on Wednesday evening.

 

More from Nasdaq:

 

The number of unemployed people in mainland France was stable in May with a negligible rise of 100 people, just nudging the total to a new all-time high of 3,264,500, labour ministry data showed.
 
According to the data, which goes back to 1996, the number of unemployed people in France has never been higher. The previous record set in 1997 was broken in March of this year.

 

The problem is that the sickly growth will leave France’s 2013 public deficit near 4% of economic output, overshooting an already revised target of 3.7% and further away from an EU goal of 3%, the state auditor said in a report on Thursday morning.

 

More from FT:

 

France has little chance of meeting its revised budget targets this year and will need to make a big effort to cut public spending if it is to meet a new deadline of 2015 set by Brussels for bringing the deficit below 3 per cent of output, the country’s national auditor has warned.
 

In a report that underscored the scale of the fiscal task facing President François Hollande’s socialist government, the Cour des Comptes said: “France is hardly halfway towards budgetary consolidation begun in 2011 and the easing of the timetable, justified by economic slowdown, does not allow for any relaxation.”
 

It said the likelihood that the economy would shrink this year, hitting tax receipts, meant there was only “a small chance” of achieving the current budget deficit target of 3.7 per cent of gross domestic product.

US Employment Situation Improved Slightly in May

According to the Bureau of Statistics, total nonfarm payroll employment increased by 175,000 in May (above expectations), and the unemployment rate rose 0.1 pt to 7.6%. The average workweek for all employees on private nonfarm payrolls was unchanged in May (34.5 hours) like average hourly earnings.

From BLS:

 

Total nonfarm payroll employment increased by 175,000 in May, and the unemployment rate was essentially unchanged at 7.6 percent, the U.S. Bureau of Labor Statistics reported today. Employment rose in professional and business services, food services and drinking places, and retail trade.

 

The change in total nonfarm payroll employment for March was revised from +138,000 to +142,000, and the change for April was revised from +165,000 to +149,000. With these revisions, employment gains in March and April combined were 12,000 less than previously reported.

 

The average workweek for all employees on private nonfarm payrolls was unchanged in May at 34.5 hours.

 

In May, average hourly earnings for all employees on private nonfarm payrolls, at $23.89, changed little (+1 cent).

 

Both the number of unemployed persons, at 11.8 million, and the unemployment rate, at 7.6 percent, were essentially unchanged in May.

 

In May, the number of long-term unemployed (those jobless for 27 weeks or more) was unchanged at 4.4 million.

 

My view:

 

1/ The momentum is weak and below the threshold of 200 K.

2/ We could also note that unemployment rate rose 0.1% to 7.6% mainly because unemployed people grew from 11.659 K to 11.760 K.

3/ The number of long-term unemployed (those jobless for 27 weeks or more) did not fall.

4/ Wage increases are still limited which means inflationary pressures will remain low in the medium term.

 

These numbers confirm my idea that Fed will not taper its bond-buying program before December.