The October data -- a well-above-forecast rise of 303,000 in the headline figure -- made it clear that the recent string of hurricanes that hit Florida and the Southeastern U.S. did indeed restrain hiring in September, and possibly August. The paltry November gain of 112,000 represents an offset for the "overshoot" in October. As such, the U.S. is back on trend, and we expect a trend-like growth rate in December.
EXPANDING CONFIDENCE. The workweek should rebound to 33.8 hours, following November's surprising dip to 33.7 hours. Hourly earnings are seen as rising 0.2%, which should leave the year-over-year rate bouncing to the 2.6% area, up from November's 2.2% pace. Overall, the data should confirm that job growth remains healthy, which bodes well for the economic outlook.
We would also note that while payroll disappointment dominated market rhetoric after the November report, the household survey component of November's jobs report revealed a hefty 483,000 gain, which followed a 298,000 increase in October. The unemployment rate fell to 5.4%, which is an historically lean level.
What are other economic indicators telling us about the labor picture? Most of the employment components from the various factory surveys for December moderated on the month. While current levels have historically been consistent with rising factory payrolls, the weak translation so far this year suggests that the U.S. will likely again not see much change in factory payrolls in December.
The current-conditions component of the University of Michigan's Consumer Sentiment index historically tends to swing with developments in the labor market. The large rebound in this component in December supports the view that the labor market continues to firm.
THE FED'S CUE. Similarly, the December "jobs hard to get" component from the Conference Board's Consumer Confidence report dropped to 26.4, from 28, while "jobs plentiful" reached 19.4, up from 17.1. The data leave the job strength index (the difference between the two series) at a negative 7 -- up from a negative 10.9 -- marking the highest point since July, and one of the highest levels of the expansion. The data provide reason for near-term optimism regarding the labor market as well.
A report in line with our forecast would suggest no imminent risk of an overheating economy. But it would also suggest that the excessive level of accommodation that has been in place for the last few years can continue to be removed by the Federal Reserve. As such, the data should support a Fed tightening trajectory that will, most likely, continue at a "measured" pace well into 2005. Englund is chief economist and MacDonald global director of investment research and analysis for Action Economics