Economic Focus -- From Action Economics

U.S. Job Growth: Climbing Back Toward the Green


Following the "sea of red" for employment reports for much of the last two years, U.S. nonfarm payrolls are set to move back into positive territory in 2010, and perhaps as early as January, with the Feb. 5 release of the month's employment report. We should see stronger gains over the coming months, led by hiring for the U.S. Census, though economists will be tracking the private payroll figures to gauge the sustainability of job growth into the second half of the year.

For the January report, we expect an unchanged payroll figure with a 0.1% rise in the jobless rate to 10.1%. The average workweek should be unchanged at 33.2 hours, while average hourly earnings should rise 0.2%.

We expect the industry mix for January's payrolls data to be similar to that seen in November and December. We should see gains in temporary and education & health employment, and a diminished downdraft in factory employment, alongside ongoing declines elsewhere. We assume a 25,000 bounce in government payrolls due to an increase in Census hiring, though the timing of this is quite uncertain.

Beyond the assumed contribution in January, we expect the monthly boosts from Census hiring to climb to a cumulative 700,000 contribution by May, before a reversal of this addition through the remainder of 2010. Total government hiring for the Census should reach 1.4 million, though all these workers won't be hired at the same time.

Drop of 65,000 Expected for ADP Report

Here is a look at some of the data that factored into Action Economics' forecasts for the January jobs report:

The ADP Employment payroll survey, scheduled for release Feb. 3, is expected to reveal a 65,000 January drop in private employment, following a likely upward revision in the –84,000 December figure. The ADP figure has undershot payrolls in each of the last eight months, as ADP improvement is lagging the Labor Dept. data.

The ADP figures for this cycle broken down by company size have continued to show a skewing of job loss toward mid-size and small firms vs. large firms, as opposed to the last cycle when the spread was more uniform, though the distribution this time around is proportional to segment size, unlike in 2001.

The weekly initial jobless claims figures for January bucked the improving trend, though this followed sharp declines in claims through the holiday period of November and December that left room for some upside January correction.

Initial claims are averaging 461,000 thus far in January, which is above the 455,000 December average, but below prior readings of 480,000 in November, 524,000 in October, and the cycle-high 658,000 in March.

Most consumer confidence measures rose back toward prior recent highs in January, or set new peaks, after posting a disappointing drop-back in October-November that capped welcome gains through the second and third quarters of 2009. The Michigan sentiment index rose to 74.4 in January from 72.5 in December and 67.4 in November. The Conference Board's Consumer Confidence Index rose to 55.9 in January from 53.6 in December, 50.6 in November, and 48.7 in October. Overall, while the various measures of consumer confidence have bounced from the hysteria-induced lows at the turn of last year, they remain at recessionary levels on an historic basis.

Factory Sentiment: Jobs Component Up

The various factory sentiment measures are also tracking the rebound in the economy, and the factory figures posted a comfortable round of gains in January. The employment components of the available factory sentiment reports have also continued to climb. The employment component of the Institute for Supply Management's January manufacturing index rose to 53.3 from 50.2 in December—the highest level since April 2006.

Recent employment figures from the ISM nonmanufacturing index have been less upbeat than the factory data. The December reading of 43.6, from 41.7 in November, is still consistent with a 100,000-200,000 monthly loss in nonmanufacturing payrolls. We expect this series to continue to close the gap with the various factory measures through 2010.

Overall, the January jobs report should extend the pattern of ongoing payroll improvement, and with the possible start of sizable Census hiring that should presumably continue through May, before unwinding. The market will certainly enjoy any return of the monthly payroll figures to the positive side of the ledger.


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