Employment and Unemployment on Differing paths in December
Two days ago, when the payroll giant Automatic Data Processing, Inc. (ADP) reported that its survey of private-sector jobs had shown an increase of nearly 300,000 in December, expectations surged on Wall Street that the nation's non-farm payroll report, to be issued at 8:30AM (EST) this morning, would show a much larger gain than the consensus forecast increase of 150,000. Yesterday morning, we opined that the correlation between the ADP report--which was the strongest gain reported by that company since it began keeping tabs on private-sector job creation in 2000--and the government issuance was not always that high, in our opinion. We were understating the case, as the Labor Department reported that just 103,000 jobs were added, in total, last month, and 113,000 private-sector jobs were created.
These latter totals make the argument that rumors of a strongly improving job market, to paraphrase Mark Twain, are greatly exaggerated. As for individual sectors, jobs increased last month in the leisure and hospitality sectors, and in health care. Also, in the goods producing area, mining employment continued to trend up, as did manufacturing jobs, which rose by 10,000 last month. On the other hand, retail sector jobs eased by some 8,000 last month, while construction-sector employment also fell, which should not be all that surprising, given the weak state of housing and commercial building.
On a somewhat brighter note, the unemployment rate, which had been stuck near 10%--coming in at 9.8% in November--surprisingly fell to 9.4% in December, with the number of unemployed individuals easing by 556,000 last month, to 14.5 million. In all, the jobless rate has fallen by half a percentage point over the past year, to the aforementioned 9.4%. The 9.4% rate is the lowest such reading since May of 2009, during the latter stages of the recent recession. It should be noted that unemployment is a lagging indicator, while employment is more of a coincident reading. Neither category, it seems, would qualify as leading indicators. December also marked the 20th month in succession that unemployment had remained above 9%, the longest stretch for such an unenviable string of joblessness since the Second World War. We view the sharp drop in unemployment last month as probably unsustainable, given the paucity of new jobs created. Our sense is that we will need to see the consistent creation of some 200,000 jobs a month to bring the jobless rate down significantly.
Meanwhile, the November payroll report was revised to show that the number of jobs created that month came to 71,000; originally, that estimated increase had been 39,000. That revision took some of the initial sting out of the December job creation figure.
In truth, the employment situation is improving, but very incrementally. The Federal Reserve has, in fact, called the unemployment rate disappointing, and forecast that it will recede only slowly and irregularly in the year ahead. The high jobless rate and corresponding subpar job creation figures are behind much of the continuing monetary accommodation policies put into place earlier this year at the Fed. The latest figures on both employment and unemployment should not mollify the central bank, in our opinion. Our sense continues to be that it will be many months, or even a year, or more, before we see the kind of job additions needed to seriously bring the jobless rate down. Until that happens, the housing market, which is often psychologically driven, will continue to struggle, we think.