Nonfarm private employment increased 9,000 from June to July 2008 on a seasonally adjusted basis, according to the ADP National Employment Report�. The estimated change in employment from May to June was revised up from a decrease of 79,000 to a decrease of 77,000.Small Business Report
This month�s employment gain was driven by growth in the service-providing sector which advanced 74,000. July employment in the goods-producing sector declined 65,000, while manufacturing employment declined 49,000, marking their twentieth and twenty-third consecutive monthly declines, respectively.
Two sectors of the economy hit hardest by recent problems in mortgage markets have been residential construction and financial activities related to home sales and mortgage lending. Today�s report suggests some lessening of the recent strain on employment in these industries.
In July, construction employment dropped 16,000. Though this was the twentieth consecutive monthly decline, and brings the total decline in construction jobs since the peak in August of 2006 to 350,000, it was one of the smallest declines in recent months. In addition, employment in financial activities rose 4,000 during the month.
The ADP Small Business Report offers continuing evidence of the weak employment situation. Here are the Nonfarm Private Employment Highlights.
� Total employment: +9,000July Is A Revision Month For BLS
� Small businesses: +50,000
� Medium businesses: -9,000
� Large businesses: -32,000
� Goods-producing sector: -65,000
� Service-providing sector: +74,000
� Manufacturing industry: -49,000
Small businesses represent payrolls with 1-49 employees
Medium businesses represent payrolls with 50-499 employees
Large businesses represent payrolls with more than 499 employees
Looking ahead to the report on Friday, it important to consider that January and July are revision months for the BLS. Guessing at what the Birth/Death Model revision will be is certainly fraught with danger, but I am going to go out on a limb anyway.
My guess the Birth Death revision will be -425,000 and the actual reported jobs number for July will be -178,000, with unemployment rising to 5.7%. If the jobs number is negative, it would be the 7th consecutive monthly contraction. These are the kind of guesses that can make one look silly but there they are.
I am also anticipating the first outright contraction in the service sector even with the strength that ADP is reporting in small businesses. Whatever that strength is, I expect it to be flooded by losses this month and next given this June 25th report: U.S. Retail Store Closures Are Flirting with Six-Year High.
Bannkrupt home furnishings retailer Linens 'n Things' disclosure this week that it plans to dispose of 120 locations is the latest burst in the retail sector's growing flood of store closings this year that has the industry's real estate disposition firms scrambling.On top of that report Starbucks recently announced it will cut 600 stores. Looking ahead, note that Bennigan's Is Bankrupt, Faces Chapter 7 Liquidation.
Home Depot recently said it would shut 15 existing stores this year and reduce the number of new store openings by almost half to 55. Then the Hilco Organization and Gordon Brothers Group, new owners of Sharper Image, announced that they will close all 86 of the chain�s remaining stores. And, Gap Inc. plans to close an unspecified number of stores while downsizing many of its remaining locations.
�You are going to see a lot more closings; we are not even close to the end,� says Graiser. �There are a few thousand more stores� coming on the market.
In light of the above, I would expect the treasury market to react favorably to the jobs data (assuming of course my predictions don't look silly on Friday morning).
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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