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Jobs Picture Remains Positive

The headline figure in the November employment report released Dec. 5 may have disappointed the markets -- nonfarm payrolls rose 57,000 instead of market expectations of 150,000 or more -- but the shortfall was more than offset by the 0.1 hour uptick in the average workweek. The positive factor here is that each 0.1 hour move in the workweek is the equivalent of nearly 400,000 jobs on an hourly basis. And when taken together with the further decline in the unemployment rate to 5.9% from 6.0%, the data are clearly still consistent with an improving labor market.

One expected area of weakness in the report was retail trade, which dropped 28,000 -- largely because of the grocery strike in California. While the report did not try to quantify a net strike effect, our guess at MMS International is that the strike reduced payrolls by a net 50,000, which implies an ex-strike payroll gain of 107,000. Also holding back the payroll figure was a disappointing gain of only 20,000 in professional and business services, after that component posted stronger gains in the two previous months.

Rounding out the report was another surprisingly subdued 0.1% gain in hourly earnings. Our view is that this subdued trend is a combination of increasing share of employment costs going to benefits, as well as a lagged response to the weak economy that was in place in the first half of the year.

Nonetheless, the jobs data imply another solid round of economic reports for November. The rise in the workweek, with particular strength for factories, and in overtime hours as well, implies that industrial production will post a solid 0.6% November gain, and 5% growth rate for the fourth quarter as a whole. This gain would have been bigger had it not been for temporary weakness in mining activity, and a pause in vehicle assemblies scheduled for November and December.

Wage restraint held back personal income, which will rise 0.4% in November. Note that the hours-worked index is growing at a stronger than expected 3% rate in the fourth quarter, which provides solid support for our 6% GDP estimate for the quarter. From MMS International staff analysts

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