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Non−farm payrolls could have declined again by about 60k in May

Mon, Jun 2 2008, 09:17 GMT
by BHF-Bank Economics Department

BHF-Bank

• ISM manufacturing index will have remained more or less unchanged in May

• ISM non-manufacturing index is likely to have fallen below 50 in May

The results of the first regional manufacturing surveys for May have been mixed so far: the New York Empire manufacturing index deteriorated somewhat to –3.2 from 0.6 in April, but the Philadelphia Fed index bounced back to –15.6 from –24.9. The Richmond Fed Manufacturing Index was down 3 points. We expect the ISM manufacturing index to have deteriorated slightly to 48.0 in May. The small business optimism, which is often regarded as a forerunner, has also improved in May but still remains on a very low level. The ISM nonmanufacturing index plummeted to 44.6 at the beginning of the year, but recovered to 52.0 in March. Given the continuing deterioration in consumer confidence and the ongoing correction in the housing market, which is spreading to other sectors, we forecast that the ISM non-manufacturing index will have fallen back to below 50 in May.

Construction spending could have fallen by about 0.3% mom in April. Housing starts have improved somewhat in May due to a rebound in the construction of multi-family units, but the construction of single- family units dropped to the lowest level in 17 years. We also expect a decline in outlays for commercial construction.

Durable goods orders dropped by 0.5 % mom in April, due to weak automobile and aircraft orders. But excluding these items, orders were pretty strong, supported by the weak dollar. Non-durable goods orders are likely to have fallen, after having risen sharply in March. We thus expect total factory orders to have declined by 0.7% in April.

Unexpectedly, the ADP report had shown a slight rise in private payrolls in March, and had thus diverged considerably from the official figures of the Department of Labour. The ADP report has been developing more favourably for some time, but we are expecting both series to have converged again, and the May ADP report could show a decline of 50k.

We also expect non-farm payrolls to have decreased by about 60k in May. The headline figure in the April report was better than the underlying trend. The big surprise was the steep increase of 39000 in professional & business services payrolls. But this is not likely to happen again. Given the weak assessment of labour market conditions in the consumer confidence report, we forecast that the unemployment rate will have risen to 5.2% in May. If average hourly earnings have gone up by 0.3% mom again, the annual rate would stay at 3.6%.

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Published on  Mon, Jun 2 2008, 09:25 GMT