U.S. payrolls ‘wild card': public school teachers, employees
The “big wildcard” in making July payroll projections is the size of the swing in public school teachers and other school workers.
Because of the size of teacher layoffs and the effect of the July 4th holiday on the data, the July seasonal adjustment factor can vary significantly from one year to the next, and the variation can be extreme, says Ward McCarthy, managing director and chief financial economist at Jefferies & Co in New York.
Many public school teachers, in addition to some other public school employees, are hired on a ten-month calendar that runs from September through June, large-scale layoffs occurring in July and large-scale hiring occurring in September.
McCarthy says the July layoffs tend to exceed one million, so even a small percentage deviation from the norm can have a significant effect on the data.
Since 2000, the July seasonal adjustment factor for private payrolls has added as few as 16,000 private sector jobs and as many as 274,000 private sector jobs, he says.
The overall seasonal adjustment factor, including government workers, has added an average of 1.338 million jobs over the same time period, with a minimum of 1.207 million and a maximum of 1.437 million. Said McCarthy:
The July seasonal adjustment factors are not as extreme as the January ones, but July is similar to January in the sense that there is significant risk of a surprise in the seasonally adjusted data due to swings in the seasonal adjustment factors.
He believes July U.S. payroll growth was again “substandard” and will fall short of Federal Reserve Chairman Ben Bernanke’s standard for “sustained improvement.”
He sees total nonfarm payrolls rising by 80,000 jobs (a bit below the Reuters consensus forecast of 100,000), with private sector payrolls up 90,000 and government jobs down 10,000. McCarthy also expects the unemployment rate to remain stuck at 8.2 percent.
The labor market tends to lag overall economic conditions — and the economy decelerated in the latter stages of Q1 and continued to do so in Q2, noted McCarthy.
This deceleration in overall economic activity has contributed to the soft employment data in April, May and June, when private payrolls rose by an average of 91,000. For the most part, the loss of economic momentum appears to have carried over into July.