I’m usually not paying too much attention to nonfarm payroll index. It is not a leading indicator and it’s usually not proving a good insight on how economy will be doing in the next several months. The only thing it tells is how the economy is doing right now.

However, from this month and until the recession starts (which timing I can’t predict, but it’s not too far away), I will start paying at least some attention to NFP.

The coming Friday report, based on just released ADP report, is likely to come at 95k to 100k, which is below consensus. If that happens, it could be another warning that good times are coming to end. However, if the report comes around 115k, as the consensus tells, then we still have time to enjoy.

Addition: The report came at 88k, weaker than my guess.

I saw the notion on the web and in the comments to my blog that strength of labor market is the strongest indication that we are not in danger of recession.

Nothing could be more wrong than that. First, the source states:

The most significant potential drawback to this or any model-based approach is that time series modeling assumes a predictable continuation of historical patterns and relationships and therefore is likely to have some difficulty producing reliable estimates at economic turning points or during periods when there are sudden changes in trend

Second, even after revisions we can observe that payroll data is a coincident indicator, not a leading one. The only thing we can conclude from today report is that we were not in recession in April and the chances to enter into recession in May are low.

But it sais nothing suggesting that recession cannot start in June

12 Months Net Change

Series Id: CES0000000001
Seasonally Adjusted
Super Sector: Total nonfarm
Industry: Total nonfarm
NAICS Code: N/A
Data Type: ALL EMPLOYEES, THOUSANDS

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Annual
1997 3040 2899 2961 3087 3020 2995 3043 2833 3121 3222 3237 3358
1998 3397 3288 3119 3106 3245 3204 3049 3411 3126 2979 2957 3003
1999 2848 3059 3035 3139 2952 3004 3178 3016 2982 3212 3222 3172
2000 3304 3028 3380 3283 3289 2989 2870 2666 2597 2163 2084 1948
2001 1690 1650 1127 547 295 208 -85 -228 -601 -919 -1443 -1763
2002 -1877 -2075 -2074 -1862 -1853 -1676 -1640 -1501 -1315 -867 -549 -530
2003 -338 -373 -523 -488 -498 -521 -430 -457 -307 -249 -204 107
2004 156 340 879 1214 1516 1594 1643 1792 1881 2055 2065 2065
2005 2046 2250 2031 2084 2003 2166 2434 2529 2464 2221 2507 2541
2006 2652 2717 2842 2646 2561 2420 2315 2299 2392 2394 2239 2263
2007 2219 2009 1937(p) 1881(p) p : preliminary

The raw 12-month trailing changes are tabulated above. As you can see the past 4 months (from January to April) map very well to similar data set of 5 month from September of 2000 to January of 2001.

I would say that this table suggests that we are now like in mid-January of 2001. As recession started in March of 2001 we can expect that this time recession can start somewhere in late June or early July, which is about 6 weeks from now

Addition: Holy crap! Indeed, the birth/death model added 317k jobs to this report. If, instead of 317k we will add the average for previous 6 months, which is 46k – today report would be -182k (yes, negative) NFP change!!!

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