Why The Large Downward Revisions To Payrolls Are Probably Closer To Reality
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A big week for economic data, including the NFP payroll report and ADP private sector job report. Last months NFP data made headlines for its massive downward revisions (-250K jobs lower) for May and June, painting a completely different picture of the job market. The intial reaction was to blame it on a “political conspiracy”, even though major revisions to the NFP have been occuring for years.
Despite the lack of credibility in the data, I still believe these downward revisions are closer to our current reality. And that is because employment weakness is evident in a variety of different data sources that I follow.
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ADP private sector payroll growth has been below the historical average for the last 6 months now. With May coming in at only +29K and June losing 23K jobs. Corroborating the NFP revsisions.
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The Institute of Supply Management (ISM) monthly survey of Services sector business (roughly 2/3rd’s of today’s economy) employment index has been below 50 for most of the year. Any reading below 50 signals contraction.
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While the ISM manufacturing employment index has also been below 50 for most of the year.
We’ll see what August looks like later this week.
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Overall, July’s economic data was a mixed bag. Only 6 of 20 data points beat expectation, but only 5 missed. Most data points came in exactly as expected (9), which was the highest of the year so far.
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August finished with a gain of 1.91%, well above the 10 year and historical average return for that month. But we now head into the worst month for stocks, as September has only finished positive 43% of the time and 40% over the last 10 years. And the average return for both historical and last 10 years are both negative. Don’t be surprised if we get some weakness ahead.
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Perhaps the biggest impediment going forward will be long interest rates. The 30 year treasury rate has stayed stronger than the 10 year, and is looking to retest the 5.0% level again. If we break above 5.1%, then I don’t think the market will take that very well initially.
More By This Author:
Q2 GDP Revised Slighly Higher As Growth Reverts Back To Normal Levels
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Economic Weakness On Display, While S&P Hits Key Technical Resistance And Seasonality Rough Patch
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