Friday, 4 January 2008

US Unemployment rate climbs in December

Nonfarm payroll growth came in at a very weak 18k in December, total revisions to previous months amounted to an addition of 10k. Before we get carried away we should point out that these numbers are subject to large revisions. In August nonfarm payroll growth was initially estimated at -4k and ended up after subsequent revisions at 93k.

Still the report shows broad weakness. Private-sector payrolls actually fell -13k, the biggest decline in more than four years. The 31k jobs added by the government sector pushing the total number into positive territory. However that is only after the magical birth death adjustment contributed 66k to the final number.

Looking closer at the details construction lost -49k, manufacturing -31k, retail suprisingly lost -24k whilst the service industry continued to add jobs growing by 93k in December. Hourly wages rose more than expected at 0.4% for the month and the real kicker was a 0.3% jump in the unemployment rate to a 2 year high of 5.0%.

The chart below illustrates why the unemployment rate is important. Since 1960, every time the unemployment rate has risen 0.5% or more the US economy has gone into recession. The unemployment rate bottomed at 4.4% in October 2006 and is now according to the latest data 0.6% above that level.

That is not meant to imply that this single data point means a recession is a certainty but the case is certainly gaining momentum alongside slowing consumer spending and weak ISM manufacturing data. I've been calling for US recession in 2008 since August 2007 and this latest piece of data on the employment front only serves to strengthen my view.