Thursday, January 09, 2020

December Employment Preview

by Calculated Risk on 1/09/2020 10:03:00 AM

Special Note: The 2020 Decennial Census will start increasing hiring in early 2020. In reporting the employment report, the headline number should be reduced (or increased) by the change in Census temporary employment to show the underlying trend.

On Friday at 8:30 AM ET, the BLS will release the employment report for December. The consensus is for an increase of 160,000 non-farm payroll jobs, and for the unemployment rate to be unchanged at 3.5%.

Last month, the BLS reported 266,000 jobs added in November (including the end of the GM strike).

Here is a summary of recent data:

• The ADP employment report showed an increase of 202,000 private sector payroll jobs in December. This was well above consensus expectations of 156,000 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 45.1%. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll decreased around 45,000 in December. The ADP report indicated manufacturing jobs decreased 7,000 in December.

The ISM non-manufacturing employment index decreased in December to 55.2%. 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 increased 215,000 in December.

Combined, the ISM surveys suggest employment gains at 170,000 suggesting gains close to consensus expectations.

Initial weekly unemployment claims averaged 224,000 in December, up from 219,000 in November. For the BLS reference week (includes the 12th of the month), initial claims were at 235,000, up from 228,000 during the reference week the previous month.

This suggest a few more layoffs (during the reference week) in December than in November.

• The final December University of Michigan consumer sentiment index increased to 99.3 from the October reading of 96.8. Sentiment is frequently coincident with changes in the labor market, but there are other factors too like gasoline prices and politics.

• The BofA job tracker declined sharply in December to 54K, down from 195K in November, suggesting fewer jobs added in December.

• Conclusion: There have been some large misses by the consensus in the month of December (high and low),  Since November was surprisingly strong (even with the end of the GM strike), my guess is December will be at or below the consensus forecast.