Economists anxiously await July jobs report

After two months of record job gains, the July employment tally, due out Friday, has become something of a wild card.

Economists surveyed by Bloomberg estimate the nation added 1.5 million jobs last month, another historically outsized number but below May’s 2.7 million and June’s 4.8 million. That two- month surge recouped about a third of the 22 million jobs U. S. employers shed in March and April as states shut down restaurants, malls and other outlets amid the COVID- 19 pandemic.

But some economists foresee the possibility of hundreds of thousands of payroll losses in the Labor Department report while others predict that total employment will be unchanged.

The wide disparity reflects a labor market at a crossroads as some states continue to allow businesses to reopen in phases while others, particularly in the South and West, pause or reverse reopening plans amid coronavirus spikes.

“Forecasting employment has become a tricky business,” Barclays wrote in a note to clients. Especially when payrolls are making such unprecedented plunges and leaps.

The picture was further muddied by payroll processor ADP’s report Wednesday that businesses added just 167,000 jobs last month, well below the 1.2 million predicted. Leisure and hospitality, which generated nearly two million jobs in June as many restaurants and hotels reopened, added just 38,000 in July.

The pullback “would make sense given the renewed restrictions on bars and restaurants in many states,” Capital Economics says.

Yet ADP, which tries to predict Labor’s private sector count, can be unreliable. Its estimate of private payroll gains undershot Labor’s by 5.9 million in May and 2.4 million in June, notes Ian Shepherdson, chief economist of Pantheon Macroeconomics.

Other barometers of the labor market have been decidedly mixed. Initial jobless claims, a rough measure of layoffs, fell by 1.2 million between the June and July employment surveys, which are conducted in the middle of the month. Continuing claims – which reflect all those still unemployed and account for Americans who have returned to work as businesses reopen – declined by 2.2 million.

Those sharp drops suggest “an increase in July employment of several million,” Barclays says. But the research firm added that claims are now providing a less meaningful signal because of massive backlogs of claims at state unemployment offices and duplicate applications for benefits during the crisis.

Other measures of economic activity point to a slowdown. The number of open small businesses at the end of July was roughly unchanged compared with the beginning of the month, according to Homebase, which makes scheduling software. And fewer employees were working slightly fewer hours.

A tracker of spending by Chase credit and debit card holders showed just a small increase in outlays between June and July, according to JPMorgan Chase.

Meanwhile, the Census Bureau’s “household pulse” survey indicates there were nearly seven million fewer jobs between the June and July employment surveys. Capital Economics notes, however, that the pulse data isn’t seasonally adjusted and may not account for large drops in employment in education at the start of the summer.

The bottom line?

The release of the July report at 8: 30 a. m. Friday should be packed with drama.

JPMorgan Chase forecasts 1.75 million job gains, Barclays estimates unchanged employment, and Deutsche Bank says the combination of various indicators would suggest a decline, at least in the private sector, of 400,000 jobs.

“Forecasting employment has become a tricky business.”

Barclays In a note to clients