Private-sector payrolls increased by a net 188,000 last month, according to the June update of the ADP Employment Report. That’s a decent improvement over May’s tepid 134,000 advance. Yesterday’s release implies that Friday’s official estimate on the state of the June labor market from the government will turn in a respectable gain.
Considering that the ISM Manufacturing Index staged a modest revival into growth territory for June, we now have a pair of numbers that offer clues for thinking that the economy continued to expand at a modest pace last month. Make that three numbers: Yesterday’s jobless claims report reveals that new filings for unemployment benefits last week dipped to by 5,000 to a seasonally adjusted 343,000, which is near a five-year low. In other words, there are minimal signs of labor-market stress by way of tracking layoffs through June. To be sure, it's still early to say anything definitive about the June economic profile, although we're off to a good start.
Turning back to the ADP data, last month’s report shows that growth in payrolls spanned a broad spectrum of company sizes. Small firms in particular (with 49 or fewer employees) posted an encouraging rise in employment growth last month—the best since February on a percentage basis. Is this a sign that the long-suffering small-company segment is finally on track to do more hiring on a sustained basis? It’s too early to tell, but yesterday’s report makes it a bit easier to think positively on this front.
US payrolls overall are still rising at a moderate rate at best, but the fact that the growth remains consistent is a clue for expecting that the economy will continue growing and avoid the worst fears of the pessimists. Is there anyone still warning that we’re in a recession, or that the risk of a downturn in the business cycle is imminent? Yes, but confidence in the forecasts of analysts in the perma-recession camp comes with quite a lot of baggage these days, namely, a lengthy history of being wrong over the last few years.
But the possibility of redemption is front and center, assuming one can modify behavior. The lesson, once again, is that tracking a broad, diversified spectrum of economic numbers provides a useful antidote to the emotion-driven noise that too often passes for analysis in macro matters via the usual media channels. Recessions may be inevitable, but you need more than a handful of shaky data sets to make a compelling argument that a new downturn is a high-probability event in the here and now.
The good news is that business cycle risk continues to look low (see here and here, for instance). The news that the economy is holding up is a shock for those who prefer drama to clear-eyed econometric analysis. Even so, nothing's perfect. Everything could change tomorrow, a risk factor that no one can ever dismiss.
It’s okay to speculate about what may be lurking around the corner. If you do so prudently, forecasting can be quite valuable in fact. The mistake is looking at predictions in a vacuum and ignoring the published numbers in hand. For reasons that we’ll leave to psychologists to explain, there’s quite a lot of this behavior in business cycle analysis, i.e., a preference for looking ahead without looking at what we know today. For those who can’t see the folly of this bias, it’s a safe assumption at this late date that they’ll never see the light.