August Employment Preview

On Friday at 8:30 AM ET, the BLS will release the employment report for August. The consensus is for 728 thousand jobs added, and for the unemployment rate to decrease to 5.2%.

There were 943,000 jobs added in July, and the unemployment rate was at 5.4%.

Click on graph for larger image.

• First, currently there are still about 5.7 million fewer jobs than in February 2020 (before the pandemic).

This graph shows the job losses from the start of the employment recession, in percentage terms.

The current employment recession was by far the worst recession since WWII in percentage terms, but is now better than the worst of the "Great Recession".

• ADP Report: The ADP employment report showed a gain of 374,000 private sector jobs, well below the consensus estimate of 638,000 jobs added.  The ADP report hasn't been very useful in predicting the BLS report, but this suggests the BLS report could be below expectations.

• ISM Surveys: Note that the ISM services are diffusion indexes based on the number of firms hiring (not the number of hires).  The ISM® manufacturing employment index decreased in August to 49.0%, down from 52.9% last month.   This would suggest a decline in manufacturing employment of around 25,000 jobs in August. ADP showed 6,000 manufacturing jobs added.

The ISM® Services employment index will be released tomorrow.

• Unemployment Claims: The weekly claims report showed a decrease in the number of initial unemployment claims during the reference week (include the 12th of the month) from 424,000 in July to 349,000 in August. This would usually suggest fewer layoffs in August than in July, although this might not be very useful right now. In general, weekly claims have been close to expectations in August.

• Permanent Job Losers: Something to watch in the employment report will be "Permanent job losers". While there has been a strong bounce back in total employment, from the shutdown in March and April 2020, permanent job losers hasn't increased as sharply.

This graph shows permanent job losers as a percent of the pre-recession peak in employment through the June report.

This data is only available back to 1994, so there is only data for three recessions. In July, the number of permanent job losers decreased to 2.930 million from 3.187 million in June. These jobs will likely be the hardest to recover.

• IMPORTANT: The employment report will probably show another increase in state and local government education hiring.  Usually in August, about 250 thousand educators are hired as the school year starts in some areas.  This year, it seems likely more educators will be hired in August, and this could boost overall employment by a couple hundred thousand in the August report.

• Conclusion: The data suggests a weaker than expected report in August.   However, there are some seasonal factors that will boost the BLS report (especially related to education).

As far as the pandemic, the number of daily cases during the reference week in August was around 125,000, up sharply from around 24,000 in July.   Although vaccinations continue to increase, this increase in cases is a negative for the job market.

So my guess is the report will be below the consensus.