January 08, 2008 |
|Employment in December came in very weak but average hourly earnings remained on the high side - leaving the Fed in a bind. Nonfarm payroll employment in December rose only an incremental 18,000, following revised increases of 115,000 in November and 159,000 in October. The December payroll gain was sharply below the consensus forecast for a 70,000 advance in jobs. The initial November estimate of a 94,000 increase was revised up 21,000 and October was revised down 11,000 from the previous estimate of a 170,000 increase. For November and October combined, the net revision was up 10,000. Weakness was primarily in construction and manufacturing sectors although the services component was mixed with some components declining.|
On a year-on-year basis, nonfarm payroll employment slipped to up 1.0 percent in December from up 1.1 percent in November.
Within the payroll survey, weakness was in the goods-producing sectors. Manufacturing fell by 31,000 in December, following a 13,000 decline in November. Construction continues to spiral downward, reflecting the recession in housing. Construction jobs fell 49,000 in December after a 37,000 decline the prior month. Natural resources & mining rose by 5,000 in the latest month.
The service-providing sector provided some strength in December, rising 93,000, following a 160,000 gain in November. The latest month was led by education & health services, up 44,000; professional & business services, up 43,000; government, up 31,000; and leisure & hospitality, up 22,000. Declines were led by retail trade, down 24,000, and by information, down 13,000.
On the inflation front, average hourly earnings held steady with a 0.4 percent gain in December, matching the boost in November. The December increase in wages was above the consensus forecast for a 0.3 percent increase. The overall average workweek in December was steady at 33.8 hours, where it has been for several months.
Manufacturing was weak in December based not just on the job decline. The average workweek also fell, from 41.3 hours in November to 41.1 hours in December. Aggregate hours in manufacturing dropped 0.7 percent in December, following a 0.2 percent gain in November. The December number suggests a sizeable decline in manufacturing output for the month.
Turning to the household survey, the civilian unemployment rate rose to 5.0 percent from 4.7 percent in November and was well above the consensus forecast for a rise to 4.8 percent. Household employment dropped 436,000 in December, following a 631,000 surge the prior month. The labor force rose by 38,000 in December, while the number of unemployed increased 474,000.
Today's report puts the Fed in a tough situation. The economy may be weakening faster than to the Fed's liking while employment costs on still on the high side. Both U.S. Treasury yields and the dollar fell on the news.
Market Consensus Before Announcement
Nonfarm payroll employment in November posted a healthy gain of 94,000, following increases of 170,000 in October and 44,000 in September. But initial job claims have been edging up and we could see a softer employment gain in December. We got an upside surprise on earnings last month with a 0.5 percent surge in November, following a 0.1 percent increase in October. The Fed and the markets will be watching to see if the November jump was an aberration or the start of ramped up wage pressures. The unemployment rate was still relatively low in November, coming in at a steady 4.7 percent. The December jobs report clearly will be setting the stage for a month-long debate on whether the Fed will be easing again at the end of its policy meeting on January 30.
Nonfarm payrolls Consensus Forecast for December 07: +70,000
Range: +50,000 to +94,000
Unemployment rate Consensus Forecast for December 07: 4.8 percent
Range: 4.7 to 4.8 percent
Average workweek Consensus Forecast for December 07: 33.8 hours
Range: 33.8 to 33.8 hours
Average hourly earnings Consensus Forecast for December 07: +0.3 percent
Range: +0.2 to +0.5 percent