Economic Focus -- From Action Economics

Jobs: Another Jumbo Decline in January


New year, same labor market. U.S. payrolls have fallen by more than 400,000 per month in the last four months, and by 584,000 in November and 524,000 in December. We expect a 550,000 January payroll decline in the Labor Dept.'s Feb. 6 employment release that roughly matches these last two decreases.

We also expect another outsize jump in the jobless rate, to 7.5% from 7.2% in December and 6.8% in November, as the ongoing consumer and business pull-back fuels the downward spiral in payrolls. The average hourly workweek is expected to hold at 33.3 hours, while average hourly earnings should increase 0.2%.

Similar to November and December, the mix of payrolls by industry should continue to show widespread weakness. Overall, we expect the report to extend the massive fourth-quarter job hemorrhaging into the first quarter.

Jobless Claims: A Steady Rise

Here's a look at the data reports that have informed our forecast. The ADP private payrolls survey released Feb. 4 revealed a 522,000 drop in January that would be consistent with a 500,000-to-510,000 payroll drop given the usual small gain in government payrolls. The industry breakdown revealed a notably large 243,000 drop for goods employment with a big 160,000 drop for factories, alongside a less grim 279,000 drop for the much larger service sector.

The weekly initial and continuing jobless claims figures have seen increased volatility with the holidays in December and January, although the oscillations in both aggregates have occurred around a deteriorating trajectory.

Initial claims are currently averaging 555,000 in January from 541,000 in December, 526,000 in November, 478,000 in October, 476,000 in September, 441,000 in August, 406,000 in July, and 388,000 in June. The 585,000 figure for the January Bureau of Labor Statistics survey week—when the government gathers the data for the monthly report—compares with prior BLS survey week readings of 556,000 for December, 543,000 in November, 479,000 in October, 458,000 in September, 432,000 in August, 372,000 in July, and 384,000 in June.

Sentiment Is Deeply Depressed

The December consumer sentiment surveys have been mixed, though they remain at historically depressed levels. The January Michigan Consumer Sentiment survey rose to 61.2 from 60.1. The Conference Board survey fell to a new all-time low of 37.7 from 38.6. The IBD-TIPP poll came in at 45.4 from 45.0. The RBC-CASH index fell to 13.3 from 15.3, while the ABC weekly index has dropped back to an average near -52 in January from a -50 average in December.

That various factory sentiment surveys, specifically the employment components, have remained at weak levels overall suggests another painful month for the manufacturing sector.

Specifically, the January ISM employment component remained unchanged at 29.9. Historically, such a figure has been consistent with a manufacturing payroll decline of 150,000—nearly spot-on with the 149,000 drop reported in December.

For the service sector, the January ISM nonmanufacturing report proved stronger than expected, bouncing to 42.9 from 40.1 in December. However, the employment component of the report posted a tiny drop, to 34.4 from 34.5, despite January gains for the other major components, such as indexes for business activity, new orders, import, and prices paid.

The ongoing labor market deterioration that we expect will be evident in Friday's jobs report should give the Federal Reserve leeway to sustain its near-zero policy target with ongoing quantitative measures for the foreseeable future, certainly through the Mar. 17 FOMC meeting.

MacDonald is director of investment research and analysis for Action Economics.


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