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Thursday, January 06, 2022

December Employment Preview

by Calculated Risk on 1/06/2022 10:53:00 AM

On Friday at 8:30 AM ET, the BLS will release the employment report for December. The consensus is for 400 thousand jobs added, and for the unemployment rate to decrease to 4.1%.

There were 210 thousand jobs added in November, and the unemployment rate was at 4.2%.

Employment Recessions, Scariest Job ChartClick on graph for larger image.

• First, currently there are still about 3.9 million fewer jobs than in February 2020 (before the pandemic).

This graph shows the job losses from the start of the employment recession, in percentage terms.

The current employment recession was by far the worst recession since WWII in percentage terms.  However, the current employment recession, 20 months after the onset, is now significantly better than the worst of the "Great Recession".

ADP Report: The ADP employment report showed a gain of 807,000 private sector jobs, well above the consensus estimate of 413,000 jobs added.  The ADP report hasn't been very useful in predicting the BLS report, but this suggests the BLS report could be above expectations.

ISM Surveys: Note that the ISM services are diffusion indexes based on the number of firms hiring (not the number of hires).  The ISM® manufacturing employment index increased in December to 54.2%, up from 53.3% last month.   This would suggest little change in manufacturing employment in December. ADP showed 74,000 manufacturing jobs added.

The ISM® Services employment index decreased in December to 54.9%, down from 56.5% last month.   This would suggest a 200 thousand increase in service employment in December.  Combined, the ISM indexes suggest employment below the consensus estimate.

Unemployment Claims: The weekly claims report showed a decline in the number of initial unemployment claims during the reference week (includes the 12th of the month) from 270,000 in November to 206,000 in December. This would usually suggest fewer layoffs in December than in November, although this might not be very useful right now. In general, weekly claims have been falling, and have been below expectations in December.

Year-over-year change employmentPermanent Job Losers: Something to watch in the employment report will be "Permanent job losers". This graph shows permanent job losers as a percent of the pre-recession peak in employment through the November report.

This data is only available back to 1994, so there is only data for three recessions. In November, the number of permanent job losers decreased to 1.921 million from 2.126 million in October.

These jobs will likely be the hardest to recover, so it is a positive that the number of permanent job losers is declining fairly rapidly.

Seasonal Retail HiringSeasonal Retail Hiring: Typically, retail companies start hiring for the holiday season in October, and really increase hiring in November.   But only a few temporary workers are hired in December.  Here is a graph that shows the historical net retail jobs added for October, November and December by year.

Retailers hired 332 thousand workers Not Seasonally Adjusted (NSA) net in November. This was somewhat lower than normal, and seasonally adjusted (SA) to a loss of 20 thousand jobs in November.

In 2020, retailers hired 140,300 employees (NSA) in December. That translated to a gain of 30,100 jobs SA.  It is possible that retailers hired for some jobs early (in October), and retail (SA) will be slightly negative in the December report (always difficult to predict).

Conclusion: There is significant optimism concerning the December employment report, and many analysts are expecting a strong report.  Overall, the ADP report was strong and unemployment claims have been falling quickly. 

As far as the pandemic, the number of daily cases during the reference week in December was around 120,000, up from around 80,000 in November.   New cases per day started increasing rapidly after the reference week in December, so the current COVID wave probably had little impact on December hiring. 

My sense is the report will be above consensus expectations.