Employment Situation Preview

Tomorrow at 8:30 AM ET, the BLS will release the employment report for July. The consensus is for an increase of 175,000 non-farm payroll jobs in July, and for the unemployment rate to decline to 7.5% from 7.6% in June.

Here is a summary of recent data:

• The ADP employment report showed an increase of 200,000 private sector payroll jobs in July. This was above expectations of 179,000 private sector payroll jobs added. The ADP report hasn't been very useful in predicting the BLS report for any one month, but in general, this suggests employment growth somewhat above expectations.

• The ISM manufacturing employment index increased in July to 54.4% from 48.7% in June. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS reported payroll jobs for manufacturing increased by close to 5,000 in July.  However the ADP report indicated a loss of 5,000 manufacturing jobs in July.

The ISM non-manufacturing (service) employment index will be released next Monday.

• Initial weekly unemployment claims averaged about 341,000 in July. This was down slightly from 345,000 in June, and near the low for the year.

For the BLS reference week (includes the 12th of the month), initial claims were at 336,000; down from 355,000 in June.

• The final July Reuters / University of Michigan consumer sentiment index increased to 85.1, up from the June reading of 84.1. This is frequently coincident with changes in the labor market, but also strongly related to gasoline prices and other factors.

• And on the unemployment rate from Gallup: More Americans working part-time vs. a year ago, but no growth in full-time jobs

Gallup's unadjusted unemployment rate for the U.S. workforce is 7.8% in July, unchanged from June (7.8%), but down from 8.2% in July 2012.

Gallup's seasonally adjusted U.S. unemployment rate for July is 7.4%, a slight decline from 7.6% in June.

Note: So far the Gallup numbers haven't been very useful in predicting the BLS unemployment rate.

• Conclusion: The employment related data was slightly better in July than in June when the BLS reported 195,000 jobs added.  Both the ADP employment and ISM manufacturing reports suggest an increase in hiring. Also weekly claims for the reference week were lower in July than in June, and consumer sentiment increased slightly.

There is always some randomness to the employment report, but my guess is the BLS will report above the consensus of 175,000 jobs added in July. A key will be the unemployment rate (and participation rate) to see if unemployment is tracking the Fed's forecast for QE3 tapering.