Thursday, January 05, 2017

December Employment Preview

by Bill McBride on 1/05/2017 03:33:00 PM

On Friday at 8:30 AM ET, the BLS will release the employment report for December. The consensus, according to Bloomberg, is for an increase of 175,000 non-farm payroll jobs in December (with a range of estimates between 151,000 to 200,000), and for the unemployment rate to increase to 4.7%.

The BLS reported 178,000 jobs added in November.

Here is a summary of recent data:

• The ADP employment report showed an increase of 153,000 private sector payroll jobs in December. This was below expectations of 172,000 private sector payroll jobs added. The ADP report hasn't been very useful in predicting the BLS report for any one month, but in general, this suggests employment growth somewhat below expectations.

• The ISM manufacturing employment index increased in December to 53.1%. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll was unchanged in December. The ADP report indicated 9,000 manufacturing jobs lost in December.

The ISM non-manufacturing employment index decreased in December to 53.8%. A historical correlation between the ISM non-manufacturing employment index and the BLS employment report for non-manufacturing, suggests that private sector BLS non-manufacturing payroll jobs increased about 175,000 in December.

Combined, the ISM indexes suggests employment gains of about 175,000.  This suggests employment growth close to expectations.

Initial weekly unemployment claims averaged 257,000 in December, up from 252,000 in November. For the BLS reference week (includes the 12th of the month), initial claims were at 275,000, up from 233,000 during the reference week in November.

The increase during the reference suggests more layoffs during that week in December as compared to November.  This suggests a below consensus employment report.

• The final December University of Michigan consumer sentiment index increased to 98.2 from the November reading of 93.8. Sentiment is frequently coincident with changes in the labor market, but there are other factors too like gasoline prices and politics.

• Conclusion: Unfortunately none of the indicators alone is very good at predicting the initial BLS employment report. The ADP report and weekly unemployment claims suggest weaker job growth. The ISM reports suggests growth close to consensus.

My guess is the December report will be below the consensus forecast.