"Surprise to the upside" — that's finance-speak for something in the market turning out better than expected. After last month's fairly dreadful jobs report, with the U.S. adding only 69,000 jobs in May, many observers are expecting another sluggish month in June. However, some data that has arrived before the official Labor Department report tomorrow suggests that June could beat expectations.
As I wrote this morning, the ADP report says that the country added 176,000 new private-sector jobs in June — with the lion's share coming from small-business hiring. The Challenger report on layoffs also indicated that companies planned to lay off less than 40,000 workers in June, a 13-month low. And first-time unemployment insurance claims for the last week in June fell, to 374,000. If you're below 400,000, that's typically a good sign for the economy's improving health.
Also, earlier today, Reuters and CNBC reported that Goldman Sachs had revised up its estimate for June jobs, to 125,000 from 75,000. That's 25,000 above the Bloomberg consensus of economist, which figures that June will be in the 100,000 ballpark.
Just about everyone except the most bearish economists missed pretty badly on their jobs predictions last month. Just about everyone could miss badly again. But gaining credence is the idea that the tail end of 2011 and the beginning of 2012 benefitted, jobs-wise, from an unusually warm winter. This exaggerated the jobs number in the first quarter. May was the wake-up call. But June could be the month that sets the recovery back on track.
However, the recovery is far from robust. What we're seeing is jobs growth that's consistent with underlying economic growth of about 2 percent. And most economists aren't calling for GDP to grow much beyond 2.5 percent for a while. That means unemployment hanging around the current rate of 8.2 percent for much of the rest of the year.
And if the headline unemployment number does drop, it would likely be the result of people leaving the workforce. The "labor participation rate," as it's called, is already at its lowest level since the early 1980s, back when women were just beginning to enter the workforce in serious numbers.
Some parts of the economy are doing well, such as the auto industry. Consumers, who make up 70 percent of the economic activity in the U.S., have been hanging in there (although some chinks are appearing, as consumer confidence declined for a fourth straight month in June). There are some tentative signs that the housing market is improving.
So there's some support for a June jobs number of around 100,000. But like last month, I'm concerned about how slowly the economy is growing. So once again I think we'll be lucky to get 100,000 new jobs in June.
There's some good news here. The economy continues to grow and the threat of a recession comes more from Europe and its battle to keep the euro from imploding than it does from our domestic economy. Much of the private sector is still adding jobs and — more importantly — not laying off as many workers.
The public sector is a problem: it's been constricting, at a time when it should be expanding to make up for loses on the private side. But it's not politically possible to go on a public hiring spree at the moment, at either the federal or state level. The presidential election has brought on gridlock in Washington and many states are struggling with budget issues.
California is one of them, with a budget deficit of nearly $16 million that has been theoretically closed — as long as tax increases that Gov. Brown has placed on the November ballot are approved by voters. The "Facebook Effect" that was supposed to bring in millions related to the social networking company's IPO has faded as Facebook's share have underperformed. At 10.8 percent, our unemployment rate is higher than the nation's. But we do have a nearly $2 trillion economy. So once it starts rolling, we should be able to make up lost ground. It's just going to take time to get rolling. Then we can start having upside expectations, rather than hoping for surprises.
The BLS will release May numbers at 8:30 a.m. Eastern Time, and I'll be wide awake on my usual Jobs Day dawn patrol in L.A. to report on the news when it breaks.