Bizarre December Employment Report: What The Numbers Mean

January 10, 2014 03:00 AM

via a special arrangement with Informa Economics, Inc.

No matter what you think of the US economic outlook, report has something for you

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.

Today's December Employment report is a head-scratcher. As the numbers detailed below show, the unemployment rate dropped to 6.7 percent – the lowest level since Oct. 2008. But payroll growth was much lower than expected, with the economy adding just 74,000 jobs – versus forecasts of around 200,000. Are those forecasters also predicting enrollment in the Affordable Care Act?

More people left the labor force, part of the reason the unemployment rate decline.

The Numbers:

December nonfarm payrolls: 74,000 jobs added.

Expectations: 200,000 jobs added


What fed the numbers: Several sectors saw jobs growth slump compared to November. Of the 74,000 jobs created, 55,000 were in retail. That is a rise from where the jobs added had been in this sector during 2013 – they averaged 32,000. But this report of course includes the Christmas season so a boost in retail hires is not shocking. Wholesale trade added 15,000 jobs.

Areas in decline -- healthcare fell 6,000 (it averaged 17,000 during 2013), construction fell 16,000 and information was down 12,000.

As for the construction decline, jobs in the nonresidential specialty trade contractors area declined by 13,000 in December, possibly reflecting unusually cold weather in parts of the country. And the Bureau of Labor Statistics noted that the number of those who didn’t work in December due to weather was 273,000 -- the most since 1977.

Unemployment rate: 6.7 percent, down 0.3 percent from November.

Expectations: 7.0 percent.


What fed the numbers: Over the year, the number of unemployed persons and the unemployment rate were down by 1.9 million and 1.2 percentage points, respectively.

The civilian labor force participation rate declined by 0.2 percentage points to 62.8 percent. That took back the increase seen in November. In December, the employment-population ratio was unchanged at 58.6 percent. The labor force participation rate declined by 0.8 percentage point over the year, while the employment-population ratio was unchanged.

Other highlights:

Average workweek: Down 0.1 hour to 34.4 hours.

Average hourly earnings: Up 2 cents at $24.17 per hour. Over the year, average hourly earnings have risen by 42 cents, or 1.8 percent.

Revisions: October kept unchanged at 200,000 jobs added while another 38,000 were added to November to bring it to 241,000 jobs added.

Comments: Well this was clearly not what markets or most were expecting. The biggest focus is on the participation rate and the decline to 62.8 percent. While most have focused on those just leaving the jobs market by giving up, the Fed included an interesting point in the FOMC minutes released this week – some of the participation rate decline is due to retirements as well. So those are workers that most likely will not rejoin the jobs market at all while those temporarily dropping out could still get added back into the mix.

The weather situation in December was a factor and the frigid conditions that gripped must of the country to start 2014 could potentially build expectations that construction in particular will see another downdraft when the January data is released next month.

The key question is what does this do to the US Federal Reserve and their tapering of asset purchases which started this month. A reversal seems unlikely based on just this one number. But what is starting to creep into the conversation is a hold on the tapering at the January meeting. Ahead of this report, the expectation was that the FOMC would take another taper step at the Jan. 28-29 session. Now, some are not as convinced that will be the case.

And don’t forget the end of emergency unemployment benefits on Dec. 28, 2013. That is also fostering talk now that the January participation rate could fall even further.

Markets have reacted to the surprise, with bond yields dropping and the Dow futures also sliding back from their pre-report levels. But Dow futures also have recovered as the data is sinking in. The US dollar index has also declined in the wake of the data.

Bottom line: The report is shocking to many, but as things get digested, the pre-opening views are not as negative as they had been. Still, it is giving some pause and will now of course increase focus on the intervening economic data leading up to the Jan. FOMC session and that will again put the sport of trying to guess the Fed’s next move back in the forefront.



NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.






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