you all probably already know that all non-essential government operations have been shut down since Monday midnight, and a little over 800,000 civilian government workers out of a total of around 2 million government employees have been furloughed since then…this is, of course, because the republican controlled House refused to pass a continuing resolution to fund government operations without an attachment either defunding or delaying obamacare, something the Senate and Obama would have no part of…although some might think it’s not all bad to see those who are charged with reading our emails and monitoring our phone calls off the job, or that 91% of IRS employees were furloughed, the latter does mean that potential home purchases may have to wait until mortgage bankers can access 2 years worth of borrowers income transcripts from the IRS before they can approve the home loans…among the other immediate impacts outside of the 800,000 federal workers who’re without a paycheck include layoffs announced by defense contractors including Lockheed and United Technologies and turning away 200 patients who otherwise would be admitted to the NIH Clinical Center, including 30 children with cancer….we’re sure there’s dozens of similar stories to be told, and so far there’s been no progress towards resolving the lapse in appropriations that caused all this; so far the only measures the Republican house have advanced are piecemeal funding bills for veterans’ programs, national parks and garbage collection in Washington DC, which have been turned back by a Senate that’s looking for a complete package…and we’re also getting closer to the October 17th date when the Treasury’s spending runs up against the statutory debt limit and threatens a default that could turn into a financial crisis with catastrophic consequences…we would bet that before it comes to that, we’d see unilateral action on the part of the administration, which would lead to a protracted court battle and possibly even a supreme court decision on what is ultimately a constitutional issue, and not a fiscal one…the whole story defies telling in a short summary; if you want more details, there are probably around a hundred linked paragraphs relating to the shutdown and the debt ceiling included in this week’s global glass onion, including the play by play leading up to the shutdown Tuesday….

there was also no September employment report from the Labor Department this week due to the shutdown, something which last happened in January of 1996, when that report was delayed two weeks in a similar protracted shutdown…and it’s not only the new reports that we’re missing, all the archived data from the census bureau, the Bureau of Economic Analysis, and several other government agencies is unavailable as well, and reports that were online a week ago have been taken down, such that if you click the link for the full GDP revision we looked at last week, ( http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp2q13_3rd.pdf ) you’ll get the following message “Due to the lapse in government funding, www.bea.gov will be unavailable until further notice. This includes access to all data and the e-File system.”…however, reports and data from the Fed are still available, as is the FRED website, from which some data associated with the charts can be downloaded….in addition, there are several private reports from which we can glean a reasonable amount of information; to that end, we’ll look at the National Employment Report from ADP

ADP Shows 166,000 Private Payroll Jobs Added in September

ADP Sept monthly change ADP, or Automatic Data Processing, is a private company that provides payroll services and administrative help with other employee data for companies representing about 10% of the U.S. workforce…from their proprietary data, they provide a monthly estimate of nonfarm private sector employment that should roughly correspond to the data we’d normally get from the BLS establishment survey, or the Current Employment Statistics (CES), which surveys more than one-fourth of businesses and agencies…for September, ADP’s private payroll jobs report showed an increase of 166,000 jobs over August job levels, while they revised their August job figures down by 17,000, from the previously reported 176,00 to 159.000; ADP indicates that of the jobs created in September, a net 147,000 were in service providing sectors, while just 19,000 were in goods-producing industries; in a metric that the BLS doesn’t track, ADP records that 74,000 of Septembers jobs were created by small businesses with under 49 employees, with establishments with less than 20 employees adding 46,000 of those, while mid-sized companies, defined as having 50 to 499 employees, added 28,000, and companies employing over 500 increased their employment levels by 64.000…

the graph to the right above is from the ADP press release and it shows the number of payroll jobs created monthly over the last 13 months…if you click to enlarge it, you’ll see that the ADP job creation readings over last three months were 190,000 for June, 161,000 for July, and 159,000 for August; that contrasts with the private job creation levels of 194,000, 127,000, and 152,000 for those months reported by the BLS establishment survey (note that doesn’t include changes in government employment)…since the overhaul of ADP’s methodology last fall, the initial readings on the two reports have had an difference of plus or minus 38,000…since the BLS itself has a 46,000 average revision from first to third estimate, whatever inaccuracies that appear in the ADP report are likely no greater than would appear in the first estimate of non-farm payrolls that we should have recovered from the labor department this Friday..the graph below, also from ADP, gives us a long term overlay of the number jobs added monthly in the ADP report in grey, comparing it to the BLS monthly payroll job change from the BLS in maroon…although they aren’t an exact match, it’s obvious that both have marked the same trend..

ADP Historical-Trend-Change-in-Total-Nonfarm-Private-Employment-September-2013

the ADP report also includes the number of jobs added in 5 select industries; construction, manufacturing,  trade, transportation & utilities, professional & business services, and financial services; thus they omit job numbers in BLS categories for mining & logging, information tech, health care & education, and leisure and hospitality, likely because their employer base doesn’t have a large enough sample in those areas to generate an accurate estimate…in September, ADP showed 16,000 jobs were added in construction, 1,000 jobs added in manufacturing, 54,000 new jobs in trade, transportation & utilities (many of which are probably retail sales), 27,000 additional jobs in professional & business services, and a loss of 4,000 jobs in financial services…the bar graph below from ADP shows a representation of those new September jobs in each of those areas in the far right bar, and jobs added in each of the previous 12 monthly bars before that, where red represents jobs added in professional & business services, dark grey are jobs added in trade, transportation & utilities, light green are jobs added in construction, orange is net job creation in manufacturing, and blue represents jobs added in financial services, where any color appearing below the “0” line meaning jobs in that category were lost that month..

ADP Change-in-Total-Nonfarm-Private-Employment-by-Selected-Industry-September-2013

to compare that ADP graph above to BLS data over the same time period for the same job categories, we have created the FRED bar graph below which includes jobs added or lost according to the establishment survey in each of those ADP selected industries, maintaining the color scheme from ADP with roughly the same colors from the FRED palate; again, each cluster of five bars below represents jobs added or subtracted in each month between September of last year and August this year (but not the missing current report), with red representing jobs added in professional & business services, grey representing jobs added in trade, transportation & utilities, light green representing jobs added in construction, orange representing jobs added in manufacturing, and blue representing jobs added in financial services…from here it looks like ADP jobs data above and BLS jobs data below are fairly close for trade, transportation & utilities in grey, construction in orange, and financial services in blue…but ADP doesn’t match where BLS show weak manufacturing job creation (green) in recent months, and both show some inconsistent swings in jobs added in professional & business services, shown in red on both graphs…

FRED Graph

Gallup Finds No Growth in Percentage Employed Full Time Since 2010

in lieu of the household survey from the BLS, we’ll also take a look at a few of the employment metrics produced from Gallup polling data…Gallup tracks the number of adults 18 and older who are employed, unemployed, and underemployed with a survey of 30,000 households monthly, in contrast to the survey of about 60,000 eligible households conducted by Census for the Labor Department; Gallup’s survey is conducted daily over the month and also generates a daily unemployment rate from a 30 day moving average of responses, whereas the BLS household survey is conducted each month during the week of the 12th to generate the monthly data for that month..since the margin of error on the unemployment rate from BLS is plus or minus 0.2%, we’d have to figure Gallup’s smaller survey has at least that much variability…also note that BLS includes all those 16 and over in their household survey metrics…

in computing an unemployment rate, Gallup figures the percentage of the workforce that are unemployed over a given month, with the “workforce” definition similar to the BLS’s “labor force”, ie, those adults who are working or actively looking for work and available for employment at the time they’re surveyed…as collected and originally reported, Gallup’s unemployment rate is not seasonally adjusted; thus their unemployment metric shows quite a bit volatility due to seasonal factors; Gallup’s unadjusted unemployment rate fell to 7.7% in September, after a 18 month high at 8.7% in August, so it’s now back near the same levels of June and July and the lowest it’s been since April…they also generate a seasonally adjusted unemployment rate using a rather unsophisticated method; they apply the percentage of seasonal adjustment as computed in the previous year’s BLS adjustment for that month to this year’s data; so, since last year’s BLS report adjusted September’s unemployment rate upward by 0.2%, they applied that change to this years data to generate a seasonally adjusted unemployment rate for September of 7.9%, down from the 8.6% rate in August, adjusted by the same method…the graph below from Gallup shows their unadjusted monthly unemployment rate from the beginning of 2011 in dark green, with an overlay of their seasonally adjusted unemployment rate computed by that method in light green; it’s obvious that both are fairly volatile, some of which might be due to the small sampling…but it does look like the unemployment rate in both metrics has been stuck in the same range over the past year and a half…

Gallup Sept U3

Gallup also generates an underemployment rate without seasonal adjustment…this would correspond to the Labor Department’s U-6 unemployment metric, where those who want full time work but are working part time for economic reasons, ie, either their hours were cut or they could only find part time work, are included in this broadest measure of unemployment…in September, Gallup found that 9.4% of us were just working part time but wanted a full time job; that was up from 8.7% involuntary part time workers in August, but down from 9.5% in July…adding those who are working part time who want full time work to those unemployed works out to an underemployment rate of 17.1% in September, down from 17.4% in August, but up from 16.5% in September 2012…in contrast, the underemployment rate from the BLS was at a new recession low of 13.7% in August, down from 14.7% a year earlierthe Gallup graph below shows their monthly underemployment rate since the beginning of 2011; you’ll note they’re at their low for this year too, as February, April and May all registered part time for economic reasons rates at 10.1%…however, they also showed somewhat lower underemployment rates for several months last year…

Gallup Sept U6

the last Gallup metric we’ll look at is the payroll to population rate, or the percentage of the population 18 and older who are working full time (over 30 hours a week); this is similar to the employment-population ratio from the BLS, except that the BLS includes the self employed, part time workers and all those over 16 in their metric…Gallup found that their “payroll to population employment rate”  decreased to 43.5% in September, down from 43.7% in August, and that it was 1.6 percentage points less than the 45.1% employment rate in September of last year, which means Gallup finds that the percentage of us working full time now is 3.5% lower than it was a year ago; this is again in contrast to the BLS employment-population ratio, which was at 58.6 percent in August, near where it had been most of the year and up fractionally from 58.4% a year earlier…assuming a reasonable accuracy in both metrics means that a significant percentage of the population has been shifted from full time to part time work over the past year, something we’ve noted in covering the household survey earlier this year…for a visualization of that, the graph below from Gallup shows their payroll to population employment rate since the beginning of 2011; although it’s not included in the graph, Gallup notes that this metric is at the same level as it was at in September 2010, meaning there has been essentially no growth in full-time employment in three years

Gallup Sept payroll to population

ISM Manufacturing Index Indicates Faster Expansion; ISM Services Index Indicates Slower Growth

another report we should have seen this week was the Full Report on Manufacturers’ Shipments, Inventories and Orders for August. which has obviously been replaced by a shutdown notice for all census.gov hosted websites…what we could look at instead is the September Manufacturing ISM Report, issued by the Institute for Supply Management…this is a widely followed report because analysts believe it gives them an advance look at manufacturing conditions and outlook that the government reports wont cover for another several weeks…but we should understand that this report does not track hard data, but merely the present situation in a number of industries as derived from a survey of purchasing managers in those industries; who are queried as to whether conditions in their industry and area are better, worse, or the same as the previous month…there are five major subindexes, each of which accounts for one-fifth of the composite, and each of those is a simple diffusion index; wherein each response of “better” out of a each hundred queries adds one to the index; each response of “the same” adds a half point, and responses of “worse” are not counted; thus a reading over 50 only indicates that a majority of those polled reported that conditions in their industry are improving…..no weighting is given for the different sizes of businesses polled, or whether conditions are a whole lot better, just marginally so, or a whole lot worse…

the September survey indicated faster expansion in September than in August, as the composite purchasing managers index (the PMI) rose to 56.2% in September, up from 55.7% in August and at the highest reading since April 2011....of the five indexes making up the PMI, the new orders index fell to 60.5% in September, down from 63.2% in August, but at a level over 50 still indicating rapid expansion; the production index increased by 0.2%, from 62.4% to 62.6%, the employment index indicated more hiring as it rose from 53.3% in August to 55.4% in September, its highest level since July 2012, while the index for suppliers deliveries rose 0.3% to 52.6% and the inventories index moved up to a neutral 50.0% from a contractionary August reading of 47.5%…other indexes that do not figure into the composite PMI include the prices index, which was up from 54.0% to 56.5%, indicating prices were increasing faster, the orders backlog, which increased 3.0 points to 49.5% but still indicated contraction, the still deeply contractionary customers inventories index which was up from 42.5 to 43.0, and the exports and imports indexes, which fell 3.5% and 3.0% to 52.0% and 55.0% respectively….

although this report includes input from purchasing managers in 18 manufacturing industries, the ISM does not break out the PMIs for specific industries; rather, they just list them in an order from fastest growing to slowest growing and a similar order for those in contraction…those industries that saw the greatest growth in new orders in September were textiles; plastic & rubber products; oil & coal products; fabricated metals; and printing & related activities, in that order; the three industries that saw new orders contraction in September were nonmetallic mineral products; primary metals; and machinery…meanwhile, those that saw the most expansion in production in September were food, beverage & tobacco products; electrical equipment, appliances & components; furniture and paper products, in that order, while 5 industries saw a slowdown in production: textiles; apparel and related products; primary metals; plastic & rubber products; and nonmetallic mineral products…eight industries reported more hiring in September, led by electrical equipment, appliances & components; wood products; printing & related activities, and furniture & related products; meanwhile, 6 industries saw employment contract for the month; apparel and related products; primary metals; nonmetallic mineral products; miscellaneous manufacturing; transportation equipment; and computer & electronic products, in that order…

FRED Graph

the Institute for Supply Management also generates a purchasing managers index for non-manufacturing industries using the same methods as described above; although these service industries are arguably more important than manufacturing in that they generate 5 out of 6 jobs, the ISM has only been surveying purchasing managers and producing this index since 2008, so it really doesn’t have a long enough track record to determine if it’s a reliable indicator of service sector expansion..the September Non-Manufacturing ISM Report generates a composite Non-Manufacturing Index (NMI) from four equally weighted diffusion indexes: business activity, new orders, employment, and suppliers deliveries…

in September, the composite NMI fell 4.2 percentage points to 54.4%, down from an all time high of 58.6% in August, indicating slower expansion in service industries...the business activity index dropped 7.1%, from 62.2% in August to 55.1% in September, but still indicated increasing activity; the employment index fell 4.3% to 52.7% in September, down from 57.0% in August, and the largest drop in that index since May 2009; in addition, new orders slipped 0.9% to 59.6%, and suppliers deliveries fell 4.5% to a stagnant 50.0%, from 54.5% in August…changes in indexes that are not included the NMI composite include a 1.5% drop in the inventory index to 54.5%, an unchanged orders backlog index at 50.5%, a 3.8% jump in the prices index to 57.2%, indicating prices are increasing faster than they were in August, a jump of 7.0% in the new export orders index to 57.5%, a 3.5% drop in the imports index to 51.5% in September, and a 1.5% decrease in inventories sentiment to 62.0%, whatever that is, which ISM lists as too high…

  of the 11 non-manufacturing industries reporting growth in September, those showing the greatest grow were retail trade; management & support of companies; transportation & warehousing; construction; utilities; information; and finance & insurance, in that order; the 4 service industries reporting contraction in September were arts, entertainment & recreation; educational services; health care & social assistance; and mining…our FRED graph above shows the history of the NMI since it’s inception in January of 2008 in blue, and the track of the older manufacturing PMI since 2000 in red, with recessions marked by grey vertical bars; we’ve also included in light grey the track of the older ISM non-manufacturing Business Activity Index, which is now incorporated into the NMI, as a indicator of the historical track of the service industries before the creation of the composite NMI…it’s a very short history, but it appears that the manufacturing index tends to lead the non-manufacturing index changes…

(the above is my weekly commentary that accompanied my sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me…)