Thursday, January 04, 2018

December Employment Preview

by Bill McBride on 1/04/2018 11:59:00 AM

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 190,000 non-farm payroll jobs in December (with a range of estimates between 160,000 to 210,000), and for the unemployment rate to be unchanged at 4.1%.

The BLS reported 228,000 jobs added in November.

First, on the weather in December from Chicago Fed economist Francois Gourio

"Perhaps surprisingly, December as a whole wasn't colder than usual for the US, but it was significantly more snowy. Our models imply that December NFP (to be released on Friday) will be affected negatively to the tune of 0.04-0.13ppt or 50k-170k jobs."
Here is a summary of recent data:

• The ADP employment report showed an increase of 250,000 private sector payroll jobs in December. This was well above consensus expectations of 185,000 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 above expectations.

• The ISM manufacturing employment index decreased in December to 57.0%. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll increased about 20,000 in December. The ADP report indicated manufacturing jobs increased 9,000 in December.

The ISM non-manufacturing employment index will be released on Friday.

Initial weekly unemployment claims averaged 241,750 in December,  about the same as in November. For the BLS reference week (includes the 12th of the month), initial claims were at 245,000, up from 240,000 during the reference week in November.

The increase during the reference week suggests a slightly weaker employment report in December than in November.

• The final December University of Michigan consumer sentiment index decreased to 95.5 from the November reading of 98.5. Sentiment is frequently coincident with changes in the labor market, but there are other factors too like gasoline prices and politics.

• Conclusion:  In general, these reports suggest a solid employment report.  However, my guess, due to the probable weather impact, is the employment report will be below the consensus.