Why The Monthly Jobs Report Is Often Misleading (Or At Least Premature)

Last Wednesday, ADP announced that 150,000 new private payroll jobs were created in June, but those jobs were not very broad-based. Nela Richardson, chief economist at ADP, said, “Had it not been for a rebound in hiring in leisure and hospitality, June would have been a downbeat month.”

ADP’s balanced jobs report, as usual, is probably closer to the truth than the more widely heralded Friday jobs report, which will likely be revised later on. ADP is based on actual payroll data, not sample surveys.

On Friday, the Labor Department announced that 206,000 payroll jobs were created in June, which was slightly higher than the economists’ consensus estimate of 190,000. Despite that robust new job total, the unemployment rate rose to 4.1% in June, from 4.0% in May.

The other big news was that there was a substantial downward revision of 57,000 payroll jobs for April (108,000 now, down from the 165,000 jobs first reported) and a 54,000 negative revision for May (218,000 jobs, down from the initial 272,000).

This is caused by the Labor Department reporting initial job estimates too early in the month to be accurate. Also, about three quarters of June’s payroll growth was in government, healthcare and social assistance, according to The Wall Street Journal (“Government to the Jobs Rescue”).

The Journal said, “These industries also made up roughly half of the new jobs in May and more than 90% in April.” In contrast, June’s total manufacturing jobs declined by 8,000, the biggest monthly drop since February.

The Labor Department also announced on Wednesday that jobless claims rose to 238,000 in the latest week, up from a revised 234,000 in the previous week. This was the ninth straight week that jobless claims have steadily risen. Continuing unemployment claims rose to 1.858 million in the latest week, up from a revised 1.832 million in the previous week, the highest rate since November 2021.

In other economic news, the Institute of Supply Management (ISM) announced that its manufacturing index slipped to 48.5 in June, down from 48.7 in May. This represents the third straight monthly decline and the 19^th time in the past 20 months the index fell below 50, the mark which signals a contraction.

The ISM service index has been below 50 in two of the past three months, dropping sharply from 53.8 in May to 48.8 in June. Also, the new export orders component declined to 48.8 in June, from 50.6 in May.

ISM Chairman Timothy R. Fiore, said, “Demand remains subdued, as companies demonstrate an unwillingness to invest in capital and inventory due to current monetary policy and other conditions,” adding that “62% of manufacturing gross domestic product (GDP) contracted in June, up from 55% in May.” Ouch! In addition, nine of the 17 manufacturing industries surveyed in June contracted.

The U.S. trade deficit rose 0.8% in May to $75.1 billion, the largest deficit since October 2022. Exports declined by 0.7% to $261.7 billion in May, while imports declined 0.3% to $336.7 billion. Any time both exports and imports are declining, it is a sign of weak worldwide economic growth. I suspect that economists will be trimming their second quarter GDP estimates in the wake of the May trade data.

Sure enough, in the wake of the lagging ISM manufacturing report and lower trade data, the Atlanta Fed cut its second quarter GDP estimate to a 1.5% annual pace, down from its previous estimate of 1.7%.

All content above represents the opinion of Louis Navellier of Navellier & Associates, Inc.

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