Tomorrow’s Employment and Unemployment Reporting Could Signal Intensifying Downturn. This morning’s Commentary is a brief update on the outlook for tomorrow’s (July 2nd) report on June labor market conditions. If the numbers disappoint already softening market expectations — I believe they have a good chance of doing that — such could be significant in meaningfully shifting consensus forecasts towards a "double-dip" or intensifying economic downturn. I look for a good shot at an outright contraction in payrolls, net of census impact, with the headline jobs loss at 250,000 or more, and for some rise in the headline U.3 unemployment rate, possibly pushing as high as 10.0%. In any event, consensus expectations are at high risk of a negative surprise or two in tomorrow’s reporting.

Last Friday, Briefing.com was reporting consensus expectations of a 70,000 jobs loss for June payrolls. As of this morning, that had widened to a 100,000 deficit, after a 413,000 gain in May. As discussed in Commentaries No. 304  and No. 305, the layoffs of temporary and intermittent workers hired for the 2010 census will dominate the headline payroll employment change for June. In the last week, the Census Bureau revised its own payroll reporting from net layoffs of 240,000 to 230,000. There is no certainty, though, as to which number the Bureau of Labor Statistics will pick-up in its monthly payroll survey.

Looking forward to next month, July payrolls also will take a heavy hit from census lay-offs. Where the payroll survey count of temporary census workers (survey week includes the 12th of the month) now stands at 573,779 for May and 344,157 for June (a drop of 229,622), an additional 94,255 workers were discharged in the week following the payroll survey. All of those temporary census employees will disappear from the numbers in the next couple of months.

If 230,000 is the number for June census layoffs, then a consensus forecast for an aggregate jobs loss of 100,000 implies an expected payroll gain, net of census effects, of about 130,000 jobs (perhaps a 150,000 gain in the private sector). In May, payrolls increased by 413,000, by 20,000 net of census effects, and by 41,000 in the private sector. 

Hypesters on Wall Street are pushing the private-sector number concept, instead of the payroll change net of changes in census worker count, because the private-sector number likely will be the stronger of two. In the regular government sector, there also have been heavy layoffs, due to budget cutbacks, etc., not due to temporary one-time circumstances like the census.  Those "normal" economic adjustments to government payrolls were enough so knock off 21,000 jobs from the net May numbers. Layoffs of a similar magnitude could be seen in June. Accordingly, the economic number to look at for assessing payrolls is total payroll change net of census impact.

Last Friday, Briefing.com was reporting an early consensus for the June unemployment rate to hold even with May, at 9.7%. Today the consensus is 9.8%. Census impact on the unemployment rate is difficult to quantify, since some portion of the recent census hires already were counted as employed with other part-time or full-time jobs. Nonetheless, census hiring certainly was a factor in May’s unemployment rate dropping to 9.7% from 9.9% in April. In like manner, the census layoffs in June should push the unemployment rate to at least the now-consensus 9.8%. With potential catch-up in distorted seasonal factors, that jump could take unemployment to 10.0% for the month.

In related reporting, the Conference Board’s May newspaper help-wanted advertising index, which leads June payrolls, held at 10 for the seventh straight month, off the record-low readings of 9 seen in September and October 2009. The Conference Board’s online help-wanted advertising statistically was flat for the month of June (total old and new advertising), with a small monthly gain in new online advertising, which I consider to be the better series. 

This morning’s reported drop in June’s manufacturing purchasing managers survey (ISM) left the key diffusion indices in positive territory (50.0 and above), with the employment index dropping to 57.8 in June from 59.8 in May.