This is the second in a series of blog entries by Joel Naroff, an economist who serves as an advisor for Susquehanna Bank:
In the wake of November’s economic data, we got all dressed up, but then found out there was no coming-out ball to go to. The questionably soft November jobs report – coupled with the surprisingly robust ADP National Employment Report® data – seemed to point to a strong gain in payrolls in December. Alas, that did not happen. Instead we got another modest increase in jobs.
December’s employment data showed payrolls increased by 103,000, with private-sector employment up by 113,000. The unemployment rate was 9.4%, down 0.4 percentage point.
The details of the report support the view that businesses continue to hire but still see no reason to add lots of workers. Indeed, the increases were quite broad-based, as 60% of the industries added workers. Manufacturing was positive, as well as just about every portion of the service-producing part of the economy. But there were few leaders of the pack. Weakness was reported in the usual places: construction and local governments. The federal government added employees; it will be interesting to see if that changes with the new Congress.
As for the unemployment rate, it was great to see it decline sharply, to the lowest level since May 2009. It’s hard to know why that happened. Don’t be surprised if unemployment rises in January. There were minimal increases in wages and hours worked, so personal income likely rose modestly as well.
This was a disappointing report, but only because the previous month’s data raised expectations unrealistically. In reality, we have come a long way in a year. During the fourth quarter, the private sector added about 130,000 workers a month. That may not sound like much, but compared to the fourth quarter of 2009 – where 90,000 workers a month were being cut – that is impressive. If we have the same swing this year, we will be looking at job gains in the 250,000 per month range, and that would lead to continuous declines in the unemployment rate.
I still believe that by the summer, monthly job gains will be approaching a solid 200,000 rate. And the unemployment rate, which may bounce around going forward, will start dropping consistently during the second half of the year. But for investors who want it all now, they are likely to be disappointed by the weaker-than-hoped-for job rise.
ADP National Employment Report is a registered trademark of ADP, Inc.