Outlook for Unemployment and Payrolls: Hoping for a Surprise

It will be an unusual report and reaction this Friday when the Labor Department releases its report on unemployment and payrolls. The European Central Bank was expected to cut interest rates on Thursday morning in an effort to add more stimulus to keep the PIIGS and the rest of Europe from getting even worse. It is the Fourth of July falling on a Wednesday that will make this report so unique as many traders, investors, economists and key members of the financial media will not be around to react to the report. Still, this report could shape the bias for the next couple of weeks or more.

Investors have been bracing for a bad number as the reports have fallen short of anything toward solid growth of late. Perhaps this is just that the United States cannot remain in much growth when China, India, Latin America and other growth drivers are seeing a serious slowdowns in their growth rates at the same time that Europe is falling deeper into a recession.

One wild card is that the recently declining employment reports of the past two months or so have seemed to level off in the regional reports as you can see here. Despite the weakest ISM reading in three years, manufacturing employment held up. With last week’s Chicago Purchasing Managers report we noted, “The June Employment Index component rose to 60.4 from 57.0 and that goes against the trends we have been seeing of late.” The most recent report from the Dallas Fed noted, “Labor market indicators reflected stronger labor demand growth and steady work weeks, rising from 8.5 to 13.7 this month.” The New York ISM report just on Tuesday went into the red under 50.0 for two consecutive months for the first time in 2012, but here is what was reported on employment: “Purchase volume and employment both expanded moderately. The Employment index (54.3 June vs. 48.4 May) was at the best level in four months.”

If you are looking for which companies could directly be the most impacted by the employment report, we would look for the human resources companies to move. That leaves Paychex, Inc. (NASDAQ: PAYX) and Automatic Data Processing, Inc. (NASDAQ: ADP) on the payrolls services and Cintas Corporation (NASDAQ: CTAS) on the uniforms side of the equation. And for online jobs searching there is Monster Worldwide, Inc. (NYSE: MWW), and the “next new job search” site of LinkedIn Corporation (NYSE: LNKD).

Thursday brings a slew of economic data pertaining to jobs, and this likely will curb or alter the expectations for Friday’s employment report. Here is what investors and economists have to watch on Thursday:

• 7:30 AM Challenger job-cut report, which will show how many cuts were made in June.
• 8:15 AM ADP Employment report, which aims to project the total number of private sector jobs created during the month of June, and the expectation from Bloomberg is currently about 95,000 (with a range of 60,000 to 167,000). Dow Jones was looking for 108,000 on last look.
• 8:30 AM Labor Department weekly jobless claims: on last look Bloomberg has a target of 386,000 as of now, which is the same prerevision number seen a week earlier (range from the economists so far is 375,000 to 395,000). Dow Jones was looking for 385,000 on last look.
• 10:00 AM ISM Non-manufacturing Index will have the June report on business and the Employment Index component was at 50.8% in the prior month.

One last report will come early on Friday from the Monster Employment Index. This may have lost some clout as job search has already changed, but it is a real-time review of a large representative selection of career sites and job boards offering a snapshot of employer online recruitment activity nationwide. As of mid-week, the Bloomberg consensus estimates for the official unemployment data are as follows:

• Non-farm Payrolls exp. 90,000; range 35,000 to 167,000
• Private Sector Payrolls exp. 100,000; range 45,000
• Unemployment exp. flat at 8.2%; range 8.1% to 8.3%
• Avg. hourly earnings up 0.2%
• Avg. work week 34.4 hours

As of mid-week, the Dow Jones consensus estimates for the official unemployment data are as follows:

• Non-farm Payrolls exp. 95,000
• Unemployment exp. flat at 8.2%

JON C. OGG