I wrote this article yesterday for a different site. They were not able to post before the unemployment numbers came out, so I will post it here. There is still a lesson to learn, since I was right about the unemployment numbers and the ADP being a poor indicator of BLS numbers. Unemployment numbers showed a total of 96,000 jobs created, which was below analysts’ expectations. Analysts had forecast the BLS unemployment numbers to be closer to 130,000 jobs added. Unemployment numbers were revised down for July to 141,000. The unemployment rate dropped from 8.3% to 8.1% as a result of 368,000 people leaving the labor force. The labor participation rate is now at 63.5%, which is the lowest number since September 1981.
Below is the article:
On Thursday, investors received all the great news they ever wanted to hear. In Europe, European Central Bank (ECB) President Mario Draghi announced a plan to buy unlimited amounts of bonds from distressed European counties.
In the United States, ADP came out with numbers showing 210,000 jobs created. Initial jobless claims also fell, giving investors and economists hope that the employment situation will improve. The Standard & Poor’s 500 Index shot up over 2 percent on the news.
Tomorrow, the unemployment numbers will be released by the Bureau of Labor and Statistics (BLS). The number will show how many jobs were created in August. Many analysts increased their forecasts after the numbers came out. Additionally, all of a sudden Wall Street thinks that the job situation has finally improved.
There are two good reasons to be cautious.
In terms of ADP numbers, they are a terrible indicator of what the BLS job numbers will show. A few months ago liberals were ridiculing the ADP because the numbers were so much higher than the BLS numbers. Liberals claimed that the ADP numbers were practically worthless.
If we go back to 2010, we can see a chart of some massive discrepancies. Some examples:
March: ADP – 50k jobs created, BLS 150k.
April ADP- 120k jobs created, BLS 230k
December ADP 250k jobs created, BLS 170K
These are just some examples, to show investors that they should not get too excited about tomorrow’s BLS numbers based on ADP results, or ever.
More importantly, the official unemployment rate of 8.3% is a farce. Millions of Americans are not included in the numbers because they have given up looking for work. The U-6, which measures these discouraged workers, is closer to 16%.
This is the depressing part, which must be reiterated over and over. Even if, the economy creates 210,000 jobs tomorrow, it will not be enough. Despite the fact that 210,000 jobs a month is normally considered a high amount, since so many people will be entering the workforce there won’t be enough jobs. According to many analysts at the Hamilton Project, job growth of 210,000 will only lead to full employment by the year 2020, or eight years from now.
If the economy creates 320,000 jobs a year it will take full three years to get back to full employment. Only in 1994, did the economy average creating 320,000 jobs a month.
Advice to everyone who reads this both before and after the jobs data comes out at 8:30am EST: never rely on the ADP. Additionally, no matter how good the BLS numbers are, it will be a long time until our job market gets back to normal.