Employment Gains Will Get Worse Before They Get Better

It is aggravating to listen to detailed discussion on the employment situation. The difference between the initial guess of the employment numbers and the “final” guess can be significant. Too many overthink the monthly employment situation from the BLS.

Every month the pundits pour over the employment situation detailing the good (usually the market pumpers), the bad (there is always something bad in employment), and the ugly (the doom-and-gloom brigade). Employment is the result of economic dynamics many months in the past. Employment essentially confirms where the economy had been months ago (our employment model averages selected economic dynamics over the trailing 6 months).

I look at employment reports with a broader brush. My position is that the monthly report is issued with too many extrapolations as the “complete” data will only be available many months following the initial employment report release. Yet, looking at the year-over-year data – employment growth remains relatively good despite September’s relatively bad report.

Below is the same graph as above – concentrating on the Great Recession and later periods.

Repeating – employment is a lagging view of the economy. Econintersect creates a six month employment growth forecast based economic pressures we are seeing in real time. Our employment index began forecasting a decline in employment in our January 2015 economic forecast which would indicate a slowing of employment growth in July 2015 based on economic pressures which historically correlate to employment growth.

We are currently predicting a pickup of employment growth in January 2016 – but we are forecasting the rest of this year with declining employment rate of growth.

The Econintersect Jobs Index projected non-farm private jobs growth of 150,000 for October 2015 – down from September’s 160,000 forecast. 

Comparing BLS Non-Farm Employment YoY Improvement (blue line, left axis) with Econintersect Employment Index (red line, left axis) and The Conference Board ETI (yellow line, right axis)