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Thursday, January 06, 2011

Employment Report Preview

by Calculated Risk on 1/06/2011 04:33:00 PM

The BLS will release the December Employment Report at 8:30 AM tomorrow. The consensus is for an increase of 140,000 payroll jobs in December, and for the unemployment rate to decline to 9.7% (from 9.8% in November).

Gregg Robb at MarketWatch reports there have been some upward revisions: Optimism over government’s job report grows

Economists polled by MarketWatch are now expecting 175,000 nonfarm jobs created in December, up from 143,000 just a few days ago.

The unemployment rate is expected to remain steady at 9.8%.
Payroll Jobs per MonthClick on graph for larger image in graph gallery.

This graph shows the net payroll jobs per month (excluding temporary Census jobs) since the beginning of the recession. The estimate for December is in blue.

Last month the BLS reported a disappointing 39,000 jobs added in November. That was significantly below expectations of 145,000 jobs.

However - as always - we should be careful not to read too much into any one month of data. A good example was in 1997. The economy added 280,000 jobs per month on average, but in August 1997 the BLS reported a decline of 18,000 jobs! Was the employment boom over? Nope. The following month the BLS reported a gain of 508,000 jobs.

And that also suggests the possibility of some bounce back from November (or an upward revision to the November payroll numbers).

Here is a look at a few of the recent employment related reports:

• ADP reported Private Employment increased by 297,000 in December, the largest gain ever for the ADP series (started in 2001). This was well above expectations of 100,000 private sector jobs - and there is widespread skepticism that the economy actually added anywhere near that number of jobs. Andrew Tilton at Goldman Sachs noted yesterday:
[W]e view the dramatic improvement shown in the ADP report with skepticism ... while we do expect a meaningful pickup in employment growth in 2011, we have not changed our forecast of a 100,000 increase in nonfarm payrolls in December.
Weekly Unemployment Claims• Weekly initial unemployment claims were down significantly over the last couple of months.

The average over the last 5 weeks was 413,000 initial claims per week.

This was down sharply from the October the average of 456,000, and the November average of 431,000.

• However the ISM indexes showed slower employment growth.

The ISM manufacturing manufacturing Employment Index registered 55.7 percent in December, 1.8 percentage points lower than the 57.5 percent reported in November. The ISM Non-manufacturing employment index showed slower expansion in December at 50.5%, down from 52.7% in November.

Job Openings and Labor Turnover Survey • The Job Openings and Labor Turnover Survey has been showing an increase in job openings.

This data is only through October.

The yellow line (job openings) has been increasing steadily since early last year.

Overall I think the labor market is improving. Anything less than the addition of 100,000 nonfarm payroll jobs would be disappointing, and there appears to be the potential for an upside surprise. However I expect little change in the unemployment rate.