June Employment Preview

On Thursday at 8:30 AM ET, the BLS will release the employment report for June (Friday is a holiday).  The consensus is for an increase of 3.1 million non-farm payroll jobs, and for the unemployment rate to decrease to 12.3%.

Last month, the BLS reported 2,509,000 jobs added in May and the unemployment rate decreased to 13.3%.

There was quite a bit of discussion last month on misclassification of workers, and it is likely the actual unemployment rate was much higher than 13.3% last month.  The BLS put out a note on Monday discussing this issue: Update on the Misclassification that Affected the Unemployment Rate. The BLS is working with the Census Bureau (Census conducts the survey), to minimize misclassification going forward. This means the unemployment rate might be higher than expected in June.

Merrill Lynch economists wrote this morning: “We expect continued recovery in the June jobs report with nonfarm payroll growth of 2.8mn, picking up from +2.5mn in May. The unemployment rate is likely to fall to 12.5% with strong job gains but also a tick up in labor participation.”

Note that the ADP report showed 2.369 million private sector jobs added in June; below expectations.

The usual indicators are somewhat useless again this month.  For example, the ISM manufacturing employment index increased in June to 42.1% from 31.1% in May, but still well below 50.   This would suggest around 60,000 manufacturing jobs lost in June – although ADP showed 88,000 manufacturing jobs added.

And the weekly claims report showed 1.48 million initial unemployment claims last week (about 2.2 million initial claims including Pandemic Unemployment Assistance). This is extremely high, but well down from the reference weeks in April and May.

IMPORTANT: The employment report will probably show a large increase in state and local government education hiring.  This is because of a quirk in the seasonal adjustment, see: Will State and Local Governments Hire 1 Million Teachers in June and July? No, but …

• Conclusion: It appears that quite a few jobs were added in June, and according to the ADP report, many of the jobs were in leisure and hospitality, as restaurants and bars reopened.  Some of those jobs will probably be lost in July with the surge in COVID cases.  

No matter what the June report shows, there will be millions and millions of people unemployed, and the course of the economy will be determined by the course of the virus.