Non Farm Payroll, Unemployment Preview

The current speculation about town is that NFP will be a positive number; Some folks have even surmised that due to certain seasonal adjustments, we could see a 300k+ print.

This is all irrelevant nonsense. Out of a Labor Pool of 143 million people, the net change in monthly gains and losses of 5 to 6 figures is a rounding error, an irrelevant, erroneous estimate, subject to significant future revisions and extensive modeling errors.

Rather than speculate what the monthly 0.001% change in the labor pool will be — that is 14,300 people out of 143 million — lets consider will and won’t be important from today’s release.

We usually look at 3 employment factors to give us insight into what is going on below the headlines — Temp Help, Hours worked, and wages. Today, we will add a fourth that becomes relevant during the recovery phase of the economy — changes of those people Not in Labor Pool (NILFs).

1. Any improvement in temporary labor tells us that businesses are tentatively feeling out the economy, adding personnel because it will support greater sales. They test the waters with temps because it is the least expensive way to add production at the loest cost. (No HR costs, Retirement, Benefits, etc.)

2. Improvements in Hours worked informs us that businesses are doing more than showing confidence — they are adding hours in response to customer demand. This implies that a virtuous cycle of consumer spending, business capex, and additional hiring will follow. Of all the components of the Employment Situation report, hours worked may well be the most important. It has been at or is near record lows during most of 2009.

3. Wages reflect the supply demand balance between workers looking for jobs and employers needing labor. The wage number tells us which side has the upper hand, supply or demand. For most of the 2000s, it has been low demand controlling the ball.

4. Lastly, let’s look at the NILFs:

During the 2002-08 cycle, I frequently noted that unemployment data wad falling for the wrong reason — it wasn’t that more people were getting jobs, it was that the labor pool was shrinking. During a recovery, the opposite could happen. From sometime in 2010-12, we could very easily see Unemployment go up as more people return to the work force.

Currently, 5.6 million aren’t in the pabor pool who were a few years ago. These are the people who have given up looking for work, and have exhausted their UE benefits — thus, they aren’t counted in the labor force.

As Mark Gongloff notes, “when they start looking again, as they typically do in recoveries, they will rejoin the labor force, competing with the roughly 9.9 million people drawing benefits. That alone will raise the unemployment rate again.

Employment Situation report out at 8:30.


4.6% Unemployment is actually 5.5% (September 11th, 2007)

A Closer Look at Unemployment (September 6th, 2007)

See also:
Current Employment Statistics – CES (National)

5.6 Million Reasons to Doubt Jobless Rate
WSJ, DECEMBER 31, 2009

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