Jobs: Big December Loss ComingRick Macdonald
The U.S. labor market should suffer another indignity in December to close out a miserable year. After a massive nonfarm payrolls decline of 533,000 in November—the worst monthly job loss since December 1974—we at Action Economics expect another supersize payrolls drop of 480,000 in the December employment report, scheduled for release Jan. 9.
We also expect a big jump in the jobless rate in December, to 7.1% from 6.7%. The average hourly workweek is expected to hold at 33.5 hours, while average hourly earnings are expected to increase 0.2%.
Contracting Economy Sheds JobsSimilar to November's numbers, the mix of payrolls by industry should continue to show widespread weakness, with factory employment a particular focus. Manufacturing jobs are expected to fall by 110,000 in December, given ongoing weakness in various manufacturing reports.
Overall, it appears that the economy continued to contract at a rapid pace through December, and the result should be another bout of substantial labor market hemorrhaging.
Here's a look at the data reports that have informed our forecast. The ADP private payrolls survey released Jan. 7 revealed a -693,000 jobs figure for December that suggests substantial downside risk to our -480,000 nonfarm payroll estimate, which is consistent with a -495,000 private payroll reading. The industry breakdown for December's ADP survey showed a widely disbursed array of declines, with a 220,000 drop for goods producers that included a 120,000 decline at factories, and a 473,000 decline for the service sector.
Jobless Claims Highest Since 1982The weekly initial jobless claims data and continuing claims figures have seen increased volatility with the holidays, although both series hit their highest level since 1982 between the November and December Bureau of Labor Statistics survey weeks—when the government gathers the data for the monthly report—though both series posted modest corrections in the December BLS week itself. After the BLS survey week, both series posted another round of new highs, extending the deteriorating trend.
The December consumer sentiment surveys have been mixed, though they remain at historically depressed levels. The December Michigan Consumer Sentiment survey rose to 60.1 from 55.3. The Conference Board survey fell to a new all-time low of 38.0 from 44.7. The IBD-TIPP poll dropped to 45.0 from 50.8. The RBC-CASH index fell to 15.3 from 34.7, while the ABC weekly index rose to -50 in December from a -51.7 November average.
The various factory sentiment surveys, specifically the employment components, remained at or near cyclical lows in December, which suggests downside risk for the December jobs report. Specifically, the employment component of the Institute for Supply Management's manufacturing report fell to 29.9 from 34.2. Such a figure has been consistent historically with a manufacturing payroll decline of 150,000.
Likely Effect on Interest RatesYet for the service sector, the December ISM nonmanufacturing report proved stronger than expected, as did the employment component index, suggesting some upside risk to December payrolls that offsets the downside risk implied by the factory sentiment measures. The headline index rose to 40.6 in December from 37.3, while the employment component bounced to 34.7 from 31.3, implying some upside risk to our December ex-factory payroll estimate of -370,000.
The ongoing labor market deterioration that we expect will be evident in the December jobs report should give the Fed leeway to sustain its near-zero interest rate policy target with ongoing quantitative measures for the foreseeable future, certainly through the Jan. 27-28 FOMC meeting.