ANALYSIS/OPINION:
While we received some surprising domestic data late last week in the form of the Institute for Supply Management Manufacturing Index, which moved higher in June despite a number of other unfavorable manufacturing reports in recent weeks, commodities have since moved higher from recent lows and the credit outlook for China’s banks fell following a report by Moody’s Investors Service.
All in all, it appears the global economy continues to be trapped in a one step forward, one step back motion rather than putting one foot in front of the other and moving ahead.
Why should the June employment report be any different? While we wait with bated breadth for the Labor Department’s read on job creation that will be released Friday, we already have gotten conflicting snapshots from other sources that point to one step forward, one step back on the domestic employment front.
Whats expected? Reports early this week showed economists expecting a modest 80,000 nonfarm jobs created in June, up from 54,000 in May. Digging deeper, nonfarm private payrolls are expected to be stronger than that and offset continued declines in public sector employment. All in all, the unemployment rate is seen as holding steady at 9.1 percent, flat with May. Before Friday, however, more conflicting jobs data.
On Wednesday, outplacement firm Challenger, Gray & Christmas reported an 11.6 percent increase in the number of planned job cuts in June to 41,432 from May’s 37,135. Looking at the Challenger Gray data a bit differently, we see job cuts in June are up more than 5 percent compared to June 2010, indicating a reversal to the declining trend touted thus far in 2011. The last time the Challenger Gray data suggested a year over year decline in job cuts was April. We have to look no further than recent announcements from Lockheed Martin, Callaway Golf, Delta Airlines, Kmart and others that job cuts are back in vogue.
Keep in mind, Challenger, Gray reports on private sector jobs but job cuts are also occurring in the public sector and those too are on the upswing. State and local payrolls have shrunk by an average of 23,000 jobs a month over the past three months and according to IHS Global Insight those payrolls are slated to shed up to 110,000 jobs in the third quarter. Those cuts reflect the next step in meeting budget gaps following slashed programs in services as state and local governments look to close their budget gaps. To date, federal payrolls have been relatively flat — obviously this will be interesting to watch amid deficit reduction and debt ceiling talks ahead of July 22, the date by which the White House thinks it must strike a budget deal with Congress to avoid a risk of defaulting on the national debt.
Flying in the face of the June Challenger, Gray report, the ADP National Employment Report for the month showed the private sector added 157,000 jobs from May to June. While head and shoulders ahead of the 60,000 jobs the report was expected to show, the reality is it is still not where it needs to be to put a meaningful dent in the unemployment rate. Soon after, we received the latest view on weekly initial jobless claims data, which brought the number of consecutive weeks above 400,000 to 13, which no matter how you slice it is not a good harbinger of things to come.
With gridlock in Washington and in several states, such as Minnesota, over tax hikes, deficits and closing budget gaps, it is difficult in my opinion to see any dramatic and sustainable increase in hiring near term. The next set of clues will be from corporate earnings reports as companies report their June quarter results and update their outlooks for the second half of 2011. With several unknowns out there, I would not be surprised to hear companies taking a more conservative stance.
Stay tuned.
• Chris Versace, the Thematic Investor, is director of research at Think 20/20, an independent equity-research and corporate-access firm in the Washington area. He can be reached at cversace@washingtontimes.com. At the time of publication, Mr. Versace had no positions in companies mentioned; however, positions can change.
Please read our comment policy before commenting.