QandO

August 05, 2004

All About Jobs
Posted by Dale Franks

Tomorrow is a big day, for both economics and politics, when the BLS releases the monthly employment report for July. Naturally, a good report will be siezed upon by the Bushies, and a bad one by the Kerry supporters, as proof of their candidate's sterling qualities, and the utter incompetence of the opposition.

Unfortunately, today's initial claims report, which showed initial unemployment claims falling to 336k, while nice, isn't very helpful in sending us any signals about tomorrow's report, since it comes after the close of the July survey period. (Despite what you may see in news reports that say today's initial claims report gives us hint about tomorrow's release.)

June, of course, was bad as far as the employment numbers. Come to think of it, it was pretty weak for almost everything else, too.

So, the big question is whether June was an aberration, or a signal of weakening growth. The bag from our initial numbers this week is a bit mixed.

The big release so for this week has been the Institute for Supply Management's ISM Index. Both the manufacturing and non-manufacturing releases of the ISM Index showed higher than expected strength in the economy. What the ISM reports did not show, however, was an equally strong pickup in hiring.

The employment component of the ISM dropped sharply to 50 from the previous month's 57.4. In general, an ISM score above 50 indicates growth, so a perfectly neutral 50 is not a precursor of rapidly expanding hiring. And, even with a June employment index of 57.4, the non-farm payrolls number was a paltry 112,000. So, the ISM has to be taken as a warning sign.

Yesterday, Challenger, Gray and Christmas, the outplacement specialist firm, released their regular employment report, indicating that US companies are still cutting payrolls.

So, economist's predictions about tomorrow's employment report are undergoing a bit of revision. I've seen predictions of up to 260k new jobs being scaled back to 215k. And, I think that may even be a bit too optimistic. I hope I'm wrong, but after seeing the ISM employment index for both manufacturing and non-manufacturing industries drop so sharply, I'm coming to the view that anything over 200k will be a blessing.

Today appears to be another confirmation of my pessimism, as retailers report their same-store sales numbers. Same store sales are still up, don't get me wrong, but at 3.3%, it's the slowest rate of sales growth in 9 months.

And, based on the reports coming out of the markets today, it appears that I'm not the only one harboring doubts. Volume on the NYSE is down almost 10% from last Thursday, so it looks like a lot of traders are sitting it out. And, in the FOREX market, the dollar, after getting pulled back from its highs by the negative ISM numbers, isn't doing much today at all.

It's like the calm before the storm.

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