Next Month's Job Growth Could Be Even Lower

The Labor Department released jobs numbers for June today and theresults were disappointing. Estimates were that non-farm payrollwould add around 100k jobs last month. Instead they added just 80K,which is just over half the number needed to keep up with populationgrowth. James Pethokoukis at AEI has put up an updated version of this familiar chart.

Notice the red dot showing where we are now. It’s a full two pointshigher than where the Obama team thought we’d be at this point without the stimulus plan. And as Pethokoukis notes,the unemployment rate only looks this good because so many people haveabandoned the work force. If you include all the people who were part ofthe workforce when Obama took office, unemployment would literally beoff the chart at 10.9 percent.

There’s one additional wrinkle to today’s numbers that was noticed by Bryan Preston over at the PJ Tatler. According to CNBC, “The birth-death model,which approximates the amount of jobs gained through new businessescreated too recently to be counted in the formal survey, added 124,000positions, meaning that without the estimation the total count wouldhave been a loss of 44,000.”

The birth-death modelappears to be a fairly good approximation of actual jobs being added,but according to BLS the data varies dramatically on a month to monthbasis. Some months the b-d model adds a lot of jobs and some months itadds few or is negative. So which months tend to add jobs? From the BLS FAQ on the birth-death model:

Months with generally strong seasonal increases suchas April, May and June generally have a relatively large positivefactor.

The b-d model is adjusted slightly each year, but if we look at last year’s chartwe find that birth-death added and estimated 141,000 jobs in June andjust 5,000 in July, for a drop of 136,000 month-to-month. I contacted James Pethokoukis at AEI to get his take on the significance of the birth-death estimates. He was kind enough to provide this response:

As you can tell, there is plenty of art in these estimates as wellas science. And when job growth is this slight, these externaladjustments can overwhelm the base numbers. Given the weakening inmanufacturing, we could get a worse base number in July than June, whichmeans that when you add in a less robust b-d model, the job gains couldbe slight to negative. Of course, if jobs are ramping back up to150,000 or so — as the ADP forecast could be interpreted as suggesting,then we would still be positive.

Unless there is a sizable bump in the base numbers, we’ll be looking at lower or negative job growth next month.