Friday, 7 December 2007

November NFP's rise 94,000

From the BLS:


Non-farm payroll employment continued to trend up in November (94,000), and the unemployment rate held at 4.7 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Job growth continued in professional and technical services, health care, and food services. Employment continued to decline in manufacturing and also fell in several housing-related industries, including construction, credit intermediation, and real estate. Average hourly earnings rose by 8 cents over the month.

Unemployment (Household Survey Data)

The number of unemployed persons (7.2 million) was about unchanged in November, and the unemployment rate was 4.7 percent for the third month in a row. A year earlier, the number of unemployed persons was 6.8 million, and the jobless rate was 4.5 percent.

A couple of points about this report. Firstly, full credit to the market for not putting any credence in the ADP report, it was way off - probably because of seasonal adjustment factors. Some economists revised their numbers up after the ADP report but noone really thought job growth was going to be as strong as the ADP report suggested.

Secondly, since when is 94,000 new jobs a strong number? I was watching CNN and Bloomberg television after the report was released and 'strong' seemed to be the adjective of choice by commentators. Yes the number beat consensus but in an economy that requires around 150k new jobs a month just to keep up with immigration and population increases 94k is not a sign of strength. Also the previous 2 months had 48,000 jobs revised away.

Consider that at the same time last year the 3 month moving average of job growth was running around 170k per month, it is now at 100k. No it is not recessionary but nor is it healthy. On the positive side, temp hiring, which is usually a reliable leading indicator of future hiring, rose for the second month in a row.

Looking ahead we are only 2 months away from the annual revision to the controversial Birth Death (B/D) adjustment. Last January the revision lopped 175k off job growth for 2006. There is plenty of anecdotal evidence to suggest that it will be larger this year.

For example since June the B/D adjustment has added an extra 62k jobs to the financial services sector and in construction 72k jobs have been added which runs contrary to everything we know about the fate of those two sectors over the last 6 months. Thus even with a revision in January of say 240k, the 3 month average growth in NFP would be more like 80k a month.

Also consider that whilst jobs in residential construction have been lost this year, housing is only getting worse and now commercial real estate is following residential construction into the abyss, so going into 2008 expect further weakness in that sector. Also major Wall Street firms will be slashing jobs left right and centre in the new year, a process that has just gotten underway.