Pre-BLS Employment Potpourri

- by New Deal democrat

This morning brought the final Initial Jobless Claims report for December. The BLS reported that seasonally adjusted claims increased slightly to 434,000 from last week's revised 433,000. Non-seasonally adjusted claims were 645,571, an increase of 88,000 from the week before, and well below the 731,958 in the same week last year. The four-week moving average fell to 450,250.

Claims at this time of year are notoriously volatile, reflecting seasonal hiring and firing. The big firing is right now, in a week or two we will see how the trend looks without the seasonal input. That initial claims will rise back above 450,000 at that time would not be surprising at all, but the overall declining trend would remain firmly intact. In the meantime, initial jobless claims are still 31% below their peak of 658,750 last April 3, consistent with actual job growth. Keep in mind, howver, that during the week the BLS made its jobs survey that will be reported tomorrow, the number of initial jobless claims was 480.000.

Monday and yesterday we had a flurry of private employment surveys, including the ISM manufacturing and non-manufacturing indices, the ADP employment report, and the Challenger jobs survey. You can pick and choose whatever you want from these numbers, depending on a bullish or bearish spin, but there are a few trends that are consistent. I'll give you the raw reports first, then distill the similarities/differences.

The Challenger jobs survey showed that

Big U.S. companies announced 45,094 job reductions in December, the fewest since the recession began two years ago. December's total was down 10% from November's 50,349 and down 73% from December 2008.

In the fourth quarter, companies announced just 151,121 job reductions, the fewest since early 2000 and down 67% from the fourth quarter of 2008.

On the other hand, the ADP jobs report

showed large businesses with 500 employees or more shed 34,000 jobs and medium-size businesses lost 25,000 workers in December. Small businesses that employ fewer than 50 workers cut 25,000 jobs.

Service-sector jobs added jobs, by 12,000, the first increase since March 2008, while factory jobs dropped 43,000.

On Monday, the ISM manufacturing report's employment index came in at 52, indicating that more employers were hiring new employees than planning layoffs. The overall index came in at 55.9, the highest since before the recession and above the 53.0 reading which in the past has coincided with actual job growth.

But on Wednesday, the ISM non-manufacturing report's employment index remained firmly mired in contraction, at 43.0, a rebound from the prior month, but still slightly below October's reading of 43.7. This index has consistently been the most negative of all indices, and best shows the small business pessimism that Invictus has reported a number of times emanating from the NFIB, which represents small businesses. With the exception of exports, however, all other indices -- production, new orders, vendor deliveries -- all showed expansion and improvement, the first time all of the other indices have been above 50 since the onset of the recession two years ago. Furthermore, the ISM said:

Respondents' comments vary by industry and, for the most part, are either neutral or slightly more optimistic about business conditions."
* "Economy seems to have leveled off with expectation of an upswing in our business in Q1 2010." (Professional, Scientific & Technical Services)
* "There has been a slight upturn in our business activities; however, it is not entirely attributable to any one particular source." (Public Administration)
* "The environment seems to be improving, but we will continue to be cautious as we look forward." (Retail Trade)
* "The current economic conditions are continuing to have a flat or negative effect on our business." (Wholesale Trade)
* "No items in short supply; suppliers looking to set up agreements for 2010 with quarterly or semiannual price reviews." (Arts, Entertainment & Recreation)

Now, let's break out some consistencies and discrepancies among the reports. First of all, notice that the ISM and ADP reports in particular contradict one another.

* ISM has been showing increasing employment in manufacturing for several months. ADP continues to show contraction.

*But in services, it is ADP that is now showing expansion, while the ISM shows continued significant contraction.

*The ISM report is most in sync with the NFIB's suggestion that job losses are now relatively concentrated in small businesses. The ADP report, however, suggests no such concentration.
*The ADP report suggests a negative jobs report Friday from the BLS. The Challenger report, with its striking assertion that the last 3 months have seen the fewest layoffs in almost the last 10 years, argues for a strong BLS report tomorrow, and is very strong evidence of my thesis that employers have been "hoarding" jobs.

What is consistent across almost all of the reports is continued improvement from October to November to December (the outlier is ISM non-manufacturing). In other words, the trend towards positivity is plain and is intact. This does not necessarily mean a positive number in the jobs report tomorrow from the BLS. The BLS jobs survey is quite noisy from month to month, and it would not be a surprise if the November report of -11,000 were an outlier from the general trend. But we should expect a BLS report considerably better than October's -111,000. I would expect a range anywhere from about -70,000 to +80,000, with the midpoint of the distribution somewhere just to the positive side of 0, per my previous research. On the other hand, J.P. Morgan economists have reported that in the last year, the ADP payrolls number has averaged 62,000 below the BLS number, which would suggest the midpoint of the distribution for tomorrow's report is -22,000.