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Experts Discuss the November Jobs Surprise


By BW staff

Wall Street and Main Street received a pleasant surprise on Dec. 4: The Bureau of Labor Statistics reported that U.S.nonfarm payrolls fell by a far smaller than expected 11,000 in November, with the jobless rate edging lower to 10.0%. Some market players were worried that job losses would actually exceed the median estimate of economists of 114,000—and that the unemployment rate would actually move as high as 10.5%, according to market "whisper" numbers reported by Action Economics. Stock-index futures rallied on the news on Dec. 4, while bond yields moved lower. Here, BusinessWeek compiles economists' Dec. 4 comments on the November job report: Michael Englund, Action Economics The U.S. jobs report revealed a broad swath of upside surprises, with a small 11,000 November payroll drop that followed 159,000 in upward back-revisions, and a drop in the politically sensitive jobless rate to 10.0%, with a 227,000 bounce in household employment that capped the prior three-month string of jumbo 392,000-785,000 declines. We also saw a …workweek bounce to 33.2 [from 33.0] that allowed a big 0.6% November gain in hours-worked. Hours-worked are now poised for a 1% rate of decline in the fourth quarter that is smaller than the 2.5% (was 3.0%) contraction rate in the third, and that certainly undershoots the prior larger contraction rates of 7.8% in the second quarter, 8.9% in the first quarter, and 7.4% in the 2008 fourth quarter. The current-quarter decline is consistent with our 2.3% fourth-quarter GDP estimate, following an estimated downward bump in third-quarter GDP growth to 2.5% from 2.8%, if we assume a 3% growth rate for productivity in the fourth quarter, following the outsized gains of 8.1% in the third and 6.9% in the second. The string of productivity gains would leave a big 4.5% year-over-year increase through the four quarters of 2009. Paul Ashworth, Capital Economics The modest -11,000 decline in US non-farm payrolls in November, together with the dip in the unemployment rate to 10.0%, from 10.2%, will be seized upon as a sign that the economic recovery is gathering momentum. This employment report is very encouraging. In addition to the trivial decline in payrolls last month, the declines in the preceding two months were revised down by a combined 159,000 and the average working week rebounded to 33.2, from 33.0. Temporary employment, often a leading indicator of permanent employment, increased by a strong 52,000 last month. Nevertheless, the bottom line is that about five months after the recession ended, the economy is still shedding jobs. At this stage, even the so-called "jobless" recoveries in 1991 and 2002 were generating job gains. Tight credit conditions, uncertainty about the economic outlook, state level fiscal tightening and strong productivity growth are all holding back job creation. None of these factors are likely to fade any time soon, suggesting that the labour market will continue to be this recovery's Achilles heel. In particular, a persistently high unemployment rate will constrain consumer spending. Brian Fabbri, BNP Paribas The November labor market report was the best monthly report in two years. Everything improved or proved much stronger than had been forecast. It suggests that the labor market is much closer to its trough and more synchronized with broader measures of economic growth. Not only were payroll job losses smaller than expected -11k versus the consensus estimate of -125k, the past two months data was revised upward by a total of 159k , the household survey produced 227k new jobs, the unemployment rate fell 0.2% to 10% versus a consensus forecast for an unchanged rate, hours worked increased 0.1 of an hour, the first increase since August 2008, and aggregate hours worked increased a robust 0.6 tenths. All of which suggest that industrial production should increase vigorously (+0.6%) and that personal income should continue rising at a slightly faster pace than in recent months (0.3%). In the goods producing sector the number of jobs lost fell to just -69k, versus -113k. Construction jobs lost declined to -27k its smallest decline in the past two years. Most of the upward revisions to the past two months data were attributed to increased government jobs (+41K) and more professional business-mainly temporary workers (+47k). Goods producing jobs also participated in the upward revisions but to a smaller extent (+35k). The household survey reinforced the positive payroll survey news. Not only did household employment rise (+227K), but the number of unemployed fell by -335k. The labor force declined again in part because prospective workers dropped out of the labor force. David Wyss, Standard & Poor's The unemployment rate fell 0.2 to 10.0% in November, while payrolls dropped only 11,000, the best performance in 23 months. The consensus was a flat 10.2% unemployment rate and a 130,000 job loss. A big jump in temporary employment probably tied to retail Christmas hires helped offset continued declines in manufacturing and construction (down 41,000 and 27,000, respectively). Retail trade employment fell 15,000, suggesting that shops are using temp services rather than direct hires. Weekly hours rose 0.2 to 33.2; along with temp services, this is a leading indicator for employment. Hourly earnings were up a meager 1¢ (0.1%). The biggest drop in unemployment was for teenagers—down 0.9 to 26.7%—another indicator that the temp jobs were concentrated in retail. All major demographic groups showed a drop in their unemployment rate. Interestingly, part-time employment dropped in November, but the average duration of unemployment hit a new high. Overall, a much stronger report than expected and very good news for markets.

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