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The U.S. labor market should suffer another indignity in December to close out a miserable year. After a massive nonfarm payrolls decline of 533,000 in November—the worst monthly job loss since December 1974—we at Action Economics expect another supersize payrolls drop of 480,000 in the December employment report, scheduled for release Jan. 9.
We also expect a big jump in the jobless rate in December, to 7.1% from 6.7%. The average hourly workweek is expected to hold at 33.5 hours, while average hourly earnings are expected to increase 0.2%.
Overall, it appears that the economy continued to contract at a rapid pace through December, and the result should be another bout of substantial labor market hemorrhaging.
Here's a look at the data reports that have informed our forecast. The ADP private payrolls survey released Jan. 7 revealed a -693,000 jobs figure for December that suggests substantial downside risk to our -480,000 nonfarm payroll estimate, which is consistent with a -495,000 private payroll reading. The industry breakdown for December's ADP survey showed a widely disbursed array of declines, with a 220,000 drop for goods producers that included a 120,000 decline at factories, and a 473,000 decline for the service sector.
The December consumer sentiment surveys have been mixed, though they remain at historically depressed levels. The December Michigan Consumer Sentiment survey rose to 60.1 from 55.3. The Conference Board survey fell to a new all-time low of 38.0 from 44.7. The IBD-TIPP poll dropped to 45.0 from 50.8. The RBC-CASH index fell to 15.3 from 34.7, while the ABC weekly index rose to -50 in December from a -51.7 November average.
The various factory sentiment surveys, specifically the employment components, remained at or near cyclical lows in December, which suggests downside risk for the December jobs report. Specifically, the employment component of the Institute for Supply Management's manufacturing report fell to 29.9 from 34.2. Such a figure has been consistent historically with a manufacturing payroll decline of 150,000.
The ongoing labor market deterioration that we expect will be evident in the December jobs report should give the Fed leeway to sustain its near-zero interest rate policy target with ongoing quantitative measures for the foreseeable future, certainly through the Jan. 27-28 FOMC meeting.
MacDonald is director of investment research and analysis for Action Economics.