Economic Focus -- From Action Economics
Jobs: The Bleeding Slows in November
The U.S. employment report for November—scheduled for release Dec. 4—should provide some modestly encouraging news. Most labor market indicators signal a continued pattern of diminishing declines for U.S. nonfarm payrolls, and Action Economics estimates a 130,000 drop for November that would mark the smallest decline since a 128,000 drop in July 2008. The jobless rate should climb further, to a new generational high of 10.3% from 10.2%. We also expect a bounce in the November average workweek to 33.1 hours from 33.0, while average hourly earnings post a 0.2% gain that would allow the year-over-year increase to slip to 2.3% from 2.5% in October. Declines are expected to continue for both goods- and services-based employment in November. The greatest downside risk for this report may be in retail trade, as November traditionally reveals a sizable holiday ramp-up that may occur to a diminished degree this year given long-held dire expectations for this holiday season and associated lean inventory levels of product supplies. Government payrolls are also a wild card, given ongoing weakness in state and local government budgets, but the approach of the eventually offsetting Census hiring process for 2010. We don't expect a boost to federal government payrolls from Census hiring just yet, though a boost could come before the end of the year. The household measure of job growth, or "civilian employment," which is used to calculate the jobless rate, will be of particular interest this month. The massive declines for this measure over the past three months—589,000 in October, 785,000 in September, and 392,000 in August—signal some ongoing downside risk to the payroll data. Leading IndicatorsHere is a look at some of the other labor market indicators we use in calculating our forecast: The ADP Employment private payroll survey, scheduled for release Dec. 2, is expected to reveal a 170,000 November drop. This is consistent with a 130,000 drop for private payrolls if we assume a 40,000 gap due to both the government jobs contribution, which we peg at zero, and a downward bias in the ADP figures relative to private payrolls that has averaged 39,000 thus far this year. The ADP industry breakdown should show a 140,000 November drop for jobs among goods producers with a 60,000 decline at factories, alongside a 30,000 drop for service employment, as these figures would largely parallel our payroll component estimates. The weekly initial jobless claims figures have posted particularly steep declines over the last month, dropping as low as 466,000 in the third week of November to leave the lowest reading since September 2008. Most measures of consumer confidence have revealed a setback in the October-November period after a notable rebound in the second and third quarters. The University of Michigan's consumer sentiment survey fell to 67.4 in November from 70.6 in October and 73.5 in September. The Conference Board's consumer confidence survey came in at 49.5 in November from 47.7 in October and 53.4 in September, with the current component (which is the most closely tied to labor market swings) dropping to a new cyclical low in November. Overall, while the various measures of consumer confidence have rebounded above the late 2008 to early 2009 lows, all the measures still remain at recessionary levels despite the rebound in gross domestic product growth. The climb in the various factory sentiment measures has also stalled in November following the third-quarter rebound, with most readings now sitting just above the "boom/bust" level of 50. The employment components of the available factory sentiment reports also continue to slowly rise with the improving economy. The employment index in the Institute for Supply Management's November manufacturing survey fell to 50.8 after jumping nearly 7 points into expansionary territory at 53.1 in October (it was 34.3 a year ago). Nevertheless, it's been in expansionary territory (above 50) for a second straight month. We expect a bounce in the employment component of the ISM nonmanufacturing report for November on Dec. 3, following the disappointing October drop to a lean 41.1 from 44.3. In total, while economic conditions continue to slowly improve, the labor market is continuing to contract, though at a diminishing pace. We expect a trough in overall employment by yearend, however, with a resumption of positive payroll changes as we enter the first quarter—if only due to the start of federal government hirings to conduct the Census. Until then, various labor market indicators continue to show a trajectory of improvement, but with many indicators remaining in recessionary territory despite the resumption of positive GDP growth.