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Wednesday, January 08, 2014

Employment Preview for December: Taking the "Under"

by Calculated Risk on 1/08/2014 11:41:00 AM

Friday at 8:30 AM ET, the BLS will release the employment report for December. The consensus is for an increase of 200,000 non-farm payroll jobs in December, and for the unemployment rate to be unchanged at 7.0%.

Something to keep in mind - it is possible that the cold weather in December impacted the payroll report. Goldman Sachs economist Kris Dawsey wrote this week:

Adverse weather so far this winter―including record low temperatures set in parts of the country―has focused attention on the potential impact on economic data. For instance, our auto analysts note that disappointing December sales could in some part be attributed to unfavorable weather. Regarding the near-term data calendar, we expect that colder-than-normal weather during the survey period for the December payroll report probably pushed employment growth below its recent trend. (Our preliminary forecast is for a 175,000 gain in total payrolls to be released this Friday.)
Here is a summary of recent data:

• The ADP employment report showed an increase of 238,000 private sector payroll jobs in December. This was above expectations of 205,000 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 increased in December to 56.9%, from 56.5% in November. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll jobs increased about 18,000 in November. The ADP report indicated a 19,000 increase for manufacturing jobs in December.

The ISM non-manufacturing employment index increased in December to 55.8% from 52.5% in November. A historical correlation between the ISM non-manufacturing index and the BLS employment report for non-manufacturing, suggests that private sector BLS reported payroll jobs for non-manufacturing increased by about 227,000 in December.

Taken together, these surveys suggest around 245,000 jobs added in December - above the consensus forecast.

Initial weekly unemployment claims averaged close to 358,000 in December. This was up sharply from an average of 324,000 in November, but about the same as the 358,000 average in October.   For the BLS reference week (includes the 12th of the month), initial claims were at 380,000; the highest level since March.

This suggests more layoffs, and possibly fewer net payroll jobs added than the consensus forecast.

• The final December Reuters / University of Michigan consumer sentiment index increased to 82.5 from the October reading of 75.1. This is frequently coincident with changes in the labor market, but in this case sentiment is recovering from the government shutdown.

• The small business index from Intuit showed a 20,000 increase in small business employment in December. This is the largest increase in this index since May, and suggests a pickup in small business hiring.

• Conclusion: As usual the data was mixed. The ADP report was higher in December than in November, and the ISM surveys suggest a larger increase in payrolls.  Consumer sentiment increased (recovering from government shutdown).  Also the Intuit small business index showed a pickup in hiring.

However weekly claims for the reference week were at the highest level since March (possibly weather related), and this suggests weather impacted the December employment report.

There is always some randomness to the employment report, but my guess is the report will be under the consensus forecast of 200,000 nonfarm payrolls jobs added in December.