Executive Summary
This missive compares data from the Bureau of Labor Statistics monthly jobs report and the ADP payroll numbers. Last week the BLS reported 147,000 new jobs (private & government), which is obtained from survey responses. ADP reported private sector jobs fell by 33,000, which is based on actual users of ADP services. The BLS’ June report revealed private sector jobs increased by 74,000 compared to the 33,000 drop reported by ADP. The remaining 73,000 increase in BLS reported jobs came from an increase in government jobs (see the first two graphs). The BLS also reported the unemployment rate dropped to 4.1%. The Household Survey reported a decrease in those unemployed of 222,000. Much of that is attributed to individuals dropping out of the labor force. See the last two graphs for how the employment to population ratio, and number unemployed for 27 weeks or more, look historically. Then decide whether hard data or surveys are more accurate.
For further analysis, continue to read The Details below for more information.
“If you can’t convince them, confuse them.”
–Harry S. Truman
The Details
Last week, the Bureau of Labor Statistics (BLS) released its June jobs report to a lot of fanfare. In this missive, I will analyze the employment situation using a non-partisan, data-based approach. Each month, analysts wait on pins and needles for the release of one number, the Establishment Survey’s change in nonfarm payrolls. The June report beat lowered expectations, showing 147,000 new jobs. Historically, this would be considered a weak report since the working-age population grew by 200,000.
Also last week, the June change in payrolls reported by ADP was released. This report showed that private sector jobs fell by 33,000. So, why the big difference? ADP uses actual payroll data from companies that utilize their systems. The BLS number comes from a survey of establishments. The Federal Reserve has indicated the response rate on the survey has declined to around 45% on average. The BLS data includes both private and public sector jobs. The BLS’ June report revealed private sector jobs increased by 74,000 compared to the 33,000 drop reported by ADP. The remaining 73,000 increase in BLS reported jobs came from an increase in government jobs. This seems odd in the DOGE environment where government is being downsized. The following two graphs illustrate, first, the change in monthly payrolls according to ADP data; and second, the change in government jobs according to the BLS Establishment Survey.
In addition to the questionable new jobs number reported by the BLS, the unemployment rate is reported to have dropped to 4.1%. The unemployment rate is calculated from the Household Survey. The Household Survey showed an increase in total employment of 93,000 and a decrease of 222,000 in the unemployed. If 222,000 people are no longer unemployed, and the working-age population increased by 200,000, how did the number employed only increase by 93,000? The answer is that many of those that were unemployed did not get jobs but instead stopped looking and fell out of the labor force. Those considered “not in the labor force” increased by 329,000. It is the large number dropping out of the labor force that pushed the unemployment rate down, not a large jump in new jobs.
The employment-to-population ratio, at 59.7, remains below the pre-pandemic level. In fact, as illustrated in the graph below, the employment-to-population ratio never fully recovered after the Financial Crisis and Great Recession in 2008-2009. Despite the massive stimulus funds distributed and the incredibly loose monetary policy after the Great Recession, and again during and after the pandemic, the employment situation remains weak.
The long-term unemployed, or those unemployed for 27 weeks or more, rose by 190,000 to 1.6 million. This level, as shown in the graph below, is higher than that seen just before the recessions in 2001, 2008-2009, and 2020.
Anyone using the survey-based data to proclaim the employment picture is strong, has not examined the preponderance of evidence. The ADP results reflect hard data whereas the BLS numbers are based upon the results of surveys which then go through a number of machinations before being released. It appears the ADP report is more reflective of the current situation.
The S&P 500 Index closed at 6,279, up 1.7% for the week. The yield on the 10-year Treasury Note rose to 4.34%. Oil prices increased to $67 per barrel, and the national average price of gasoline according to AAA fell to $3.15 per gallon.
© 2024. This material was prepared by Bob Cremerius, CPA/PFS, of Prudent Financial, and does not necessarily represent the views of other presenting parties, nor their affiliates. This information should not be construed as investment, tax or legal advice. Past performance is not indicative of future performance. An index is unmanaged and one cannot invest directly in an index. Actual results, performance or achievements may differ materially from those expressed or implied. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy.
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