by Calculated Risk on 11/05/2013 01:09:00 PM

There will be some ugly numbers in the October employment report to be released on Friday. The unemployment rate will probably increase sharply, and the number of part time workers for economic reasons will also increase. Excerpts from the BLS on the impact of the government shutdown:

For October 2013, the household survey reference week was Sunday, October 6, through Saturday, October 12. During this period, some federal government agencies were closed or were operating at reduced staffing levels because of the lapse in their funding. The federal employees and contractors who work for those agencies may have been off work for all or part of the week. ... Workers who indicate that they were not working during the entire survey reference week and expected to be recalled to their jobs should be classified in the household survey as unemployed, on temporary layoff.

Workers who usually work full time but indicate that they had worked fewer than 35 hours in the reference week because of the shutdown should be classified as employed part time for economic reasons.

These shutdown related ugly numbers should be reversed in the November report (due early December).

However the impact on the October establishment survey is less certain. The consensus forecast is for an increase of 120,000 non-farm payroll jobs in October, down from the 148,000 non-farm payroll jobs added in September.

Here is a summary of recent data:

• The ADP employment report showed an increase of 130,000 private sector payroll jobs in October. This was below expectations of 138,000 private sector payroll jobs added. The ADP report hasn't been very useful in predicting the BLS report for any one month. But in general, this suggests employment growth close to expectations.

• The ISM manufacturing employment index decreased in October to 53.2% from 55.4% in September. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll jobs were mostly unchanged in October. The ADP report indicated a 5,000 increase for manufacturing jobs in October.

The ISM non-manufacturing employment index increased in October to 56.2% from 52.7% in September. A historical correlation between the ISM non-manufacturing index and the BLS employment report for non-manufacturing, suggests that private sector BLS reported payroll jobs for non-manufacturing increased by about 235,000 in October.

Taken together, these surveys suggest around 235,000 jobs added in October - well above the consensus forecast.

• Initial weekly unemployment claims averaged close to 356,000 in October. This was up sharply from an average of 305,000 in September.  However there were some computer problems in California, and claims in September were probably too low - and claims in October too high.  So this might not be useful this month.

• The final October Reuters / University of Michigan consumer sentiment index decreased to 73.2 from the September reading of 77.5. This is frequently coincident with changes in the labor market, but in this case the decline was probably related to the government shutdown.

• The small business index from Intuit showed a small decrease in small business employment in October.

• Conclusion: As usual the data was mixed. The ADP report was a little lower in October than in September, however the ISM surveys suggest an increase in hiring. Weekly claims for the reference week were higher (probably mostly due to computer issues), and consumer sentiment decreased (due to the government shutdown).

There is always some randomness to the employment report - and there are reasons for pessimism (ADP, unemployment claims, consumer sentiment), however with so many questions about the data, I'll lean towards the ISM surveys and my guess is the BLS will report more than the 120,000 consensus jobs added in October. 

There are many questions about this employment report because of the government shutdown, and the November report will be much more important.