NFP: Soft Prejudice of Low Expectations

Yesterday’s unreliable ADP employment report helped to ignite a rally in equities. If you understand what various Payroll Levels means, one hopes that other factors were on traders’ minds.

The ADP data — 130,000 private sector jobs added in June — was hardly encouraging. But it did manage to beat rather low 105k consensus for what BLS might look like today. Call it the “Soft prejudice of low expectations.”

Understand this much about the US Labor Market: In a nation of 307 million people with a ~145 million people working, it takes about 150k per month of new hires to merely tread water. That means adding new workers at the growth rate of 1% per year, a touch less than 0.1% per month just to keep up with population growth. From Immigrants to college graduates to people simply returning to the labor market, the Labor Pool increases each and every month. Just to hold the percentage of Employed people steady, to maintain the Unemployment rate as flat requires that many new jobs.

Let’s assume the ADP report is correct: 130k private sector jobs in June. We have seen a drop in government workers — at both the Federal level, and at state levels, as teachers, cops, librarians, etc. get laid off. That is how we end up with a 105k consensus for BLS.

Thus, if employers added more workers in June than in May, its an improvement — but just barely. The next likely assumption from the dismal set will be that the weak but improving number indicates second half revivial.

I am less than convinced of that. The typical post credit-crisis weak job market is my baseline expectation. We need a few months of 200k+ job creation to be convinced that a significant improvement is taking place . . .

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