Friday’s Unemployment Report Is Likely to Be Trouble for Stocks

A poll of economists tells us to expect a pretty good unemployment report this Friday. But other government data tell us to look for weak jobs data.

Tomorrow’s the first Friday of the month, and that means the unemployment report for June will be released. A Bloomberg poll of economists tells us to expect a pretty good report. They estimate 170,000 new jobs were created in June. This would be a little better than May, when just 138,000 new jobs were created. The unemployment rate probably stayed at 4.3%.

But other government data tell us to look for weak jobs data. Analysts at Mathematical Investment Decisions track payroll tax receipts, a leading indicator of the unemployment report. The chart below shows that receipts declined in June. This could mean the unemployment report won’t meet expectations.

A poll of economists tells us to expect a pretty good unemployment report this Friday. But other government data tell us to look for weak jobs data.

(Source: MathInvestDecisions.com)

The chart tracks changes in payroll taxes paid to the government. Employers make these payments immediately after paying employees. Since May, payroll tax receipts are down. This tells us either employment or wages are down. Neither of those outcomes is good for stocks.

Payroll taxes mirror changes in employment, but it’s not an exact match. Payroll taxes for a well-paid engineer, for example, could be higher than the payroll taxes for 10 new retail jobs. The employment report counts each job equally in its data.

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Friday’s jobs report is based on surveys conducted in June. The Treasury Department posts its bank statement daily. Those statements offer real-time insights into the jobs data.

We know payroll tax receipts dropped in June. That’s not pointing to a strong job market. Traders may react strongly on Friday, selling stocks as fears of an economic slowdown mount.

Regards,

Michael Carr, CMT
Editor, Peak Velocity Trader

  • jringo55

    Simply put — they are calculating a job as a plus to the economy and a plus to the revenue but the masses are being paid a lot less and that doesn’t equate to more revenue. So by all accounts, the employment figures don’t equate to more revenue. To obtain the goal they are after would require jobs in mass to pay better and thus more revenue would be generated. This begs to question — why is the GOP insisting a tax cut across the board is the solution? A tax cut across the board will reduce revenue all the more.This is what I call a math failure – STUPID MATH

  • jringo55

    The FED commonly creates inflation to pay the debt – They can’t do that anymore. The masses can’t survive under inflation. They are already living pay check to pay check. The end of this money game is very close.

  • Michael Carr

    The report was better than expected but will be revised. As jringo55 noted, the jobs are low paying and wages are growing slowly. The fact that payroll taxes point down and the jobs data is up presents a divergence that will be resolved soon. Either government tax receipts will jump unexpectedly or the jobs data will be revised lower. I am betting jobs come down.

  • jringo55

    The whole idea behind allowing immigrants to come to America was a hope that revenue could be collected in mass by more people working at lower wages but it’s a failure. The govt cannot get enough revenue from the working class labor who is already in dire straights. Reagan was warned about the baby boomers taking us negative when he was in office. He ignored it. And so did those who followed him. This could have been avoided — GREED wouldn’t allow this to be managed. Govt doesn’t know how to save money — it only knows how to borrow and spend – spend and borrow to spend — over and over.

  • jringo55

    It sickens me to know that govt purposely stood by and watched as Wall Street coupled with corporations, big banks and reckless CEO’s destroyed our economy for GREED and took the common folks retirement money and now retirees are living in swallow on fixed poverty incomes and there is no hope because the debt is hampering all of us except the rich who just don’t care. None of the working class or the poor made any of the decisions that brought us to where we are today. The rich and powerful are all to blame yet they suffer not at all. Very very very bad leadership in America for over 40 years — Both Parties.

  • jringo55

    The FED will be making a big mistake if they target 2% inflation annually. The masses are living pay check to pay check. The people on fixed retirement incomes cannot absorb 2% increases to inflation. Retirees don’t get raises. The 2% target is a disaster plan. Total disaster. If the FED goes ahead with this plan — you can count on a full blown RECESSION. The FED lofted cheap money to Wall Street and Corporations for the last 8 years. BIG MISTAKE. Main Street has never had a recovery and they will be the very ones hurt in the next melt down. This next recession will make 2008 look like a walk in the park.