Thursday, March 4, 2010

ISM Employment and Nonfarm Payrolls

- by New Deal democrat

First of all, I want to thank our co-blogger Invictus who has been corresponding with cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 St. Louis Federal Reserve about adding new data series and functions to cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365ir Fred site. Among cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 items he asked cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365m to add were cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 ISM non-manufacturing subsets, and cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y have now done so.

That comes in handy, as cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 ISM non manufacturing index was released yesterday, rising more than expectations to 53.0. The business activity sub-index rose from 52.2 to 54.8, and new orders rose from 54.7 to 55.0. Inventories are still contracting (a good sign) but a little more slowly at 46.0 . The employment sub-index also rose, from 44.6 to 48.6 - which means that employment is just barely contracting.

So I am now able to post this graph comparing ISM manufacturing employment (blue) with ISM non-manufacturing employment (green), and nonfarm payrolls (red):


It is fair to state that neicá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r employment sub-index leads cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 BLS's nonfarm payrolls number, but it does help highlight cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 unique divergeance of manufacturing vs. nonmanufacturing payrolls in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 last 8 months. During all of 2002, both sets of employment numbers moved togecá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r. In 2003 cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y diverged, but it was retail employment which held up and manufacturing employment that declined -- and that was consistent with cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 nonfarm payrolls data.

Please also note, jobs were (just barely) added in mid-2002 even though both employment indexes were below 50 but were above 45 -- so today's employment subindex number of 48.6 is no impediment to actual job growth. A nice scatter graph showing that an ISM services employment reading over 47.5 has almost always coincided with services job growth is available at Calculated Risk here .

This time around, as I have mentioned a number of times previously, services employment was much more severely impacted by layoffs than in prior recessions -- instead of being about 10% of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 layoffs, cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y were fully half -- about 4 million jobs.

Given cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 "Bifurcated recovery" I wrote about on Monday, and cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 fact that my "leading employment index" which predicted job growth in November or December +/- 1 month looks like it came close, but not cigar, I have been thinking about what would best tweak cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 index to make it more predictive.

One obvious way is to insist that GDP growth appear like it could equal 2% YoY in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 current quarter. That wasn't going to happen in 4Q 2009, even with cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 first report of 3.8% annualized growth in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 3rd quarter. Anocá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r way is to include eicá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r housing permits/starts and/or cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 ISM non-manufacturing index in a weighting with ISM manufacturing to form that component of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 index. That is to say, manufacturing isn't cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 only leading component of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 economy, so is housing, and services tend to come back first before goods-producing jobs, so a better index might include a weighting of those.

Based on cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 above, although cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 non-manufacturing index is only 13 years old, it appears that its business activity subindex does add value to any leading employment index for nonfarm payrolls, as set forth in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 two graphs below:

Here cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y are for cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 2001 recession:



and here cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y are for cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 current recession (minus yesterday's reading):



My original "Leading Employment Index" relied on an ISM manufacturing reading above 53. We can tweak that in a manner consistent with both above graphs by insisting on cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 following:

(1) cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 ISM manufacturing index be above 50 and ISM non manufacturing business activity above 48 as an initial signal; and
(2) both indexes be above 52 and average 53 or higher as a final signal, which gives one or two months' lead time to job growth. That signal was triggered for one month in October (accurately) and cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 ISM non-manufacturing business activity subindex just fulfilled this part of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 signal again yesterday.

As I see it, cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 only way employment doesn't turn positive by next month would have to be very large layoffs in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 construction industry overwhelming hiring in manufacturing and services. We'll see how that pans out.