Economic First Look: Jobs Report Will Dominate

 | Dec 29, 2012 | 10:30 AM EST  | Comments
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Editor's Note: This piece has been corrected from the original, which noted a special schedule for Monday trading. Markets will close Monday at the normal time.

Monday

  • Dallas Federal Reserve Manufacturing Survey, 10:30 a.m. (All times EST)

Tuesday

  • Happy New Year! Markets are closed

Wednesday

  • Motor Vehicle Sales, reported by each manufacturer throughout day with media tally in afternoon
  • Institute for Supply Management Manufacturing Index, 10 a.m.
  • Construction Spending, 10 a.m.
  • Federal Open Market Committee minutes, 2 p.m.

Thursday

  • Chain Store Sales, reported by each retailer in morning with media tally in morning
  • ADP Employment Report, 8:15 a.m.
  • Jobless Claims, 8:30 a.m.
  • Energy Information Administration Petroleum Status Report, 11 a.m.

Friday

  • Employment Situation (a.k.a. nonfarm payrolls), 8:30 a.m.
  • Factory Orders, 10 a.m.
  • Institute for Supply Management Non-Manufacturing Index, 10 a.m.

The week ahead will be dominated by the jobs report for December. Although the effects of Hurricane Sandy should be less substantial than what we saw in October and November, handicapping this month's report is an inexact science due to the variability and distortions in the data that economists (including me) use to forecast the report.

The number of job openings, for example, is as of the end of October, per the Bureau of Labor Statistics' Job Openings and Labor Turnover Survey (JOLTS report). The BLS notes that this report required estimating procedures where certain businesses had disruptions when reporting those openings in November. Not all businesses provided a reporting to the BLS that month. Additionally, while job openings tend to be filled within a couple of months of being posted, the storm may have caused some openings to be filled in December instead of November.

The jobless-claims data, which detail layoffs, have shown volatility due to business disruptions during the storm and in workers' ability to file claims. Jobless claims spiked in mid-November, most likely due to the storm, and they have since receded. That makes determining the true nature of layoff trends difficult. While the direct effects of the storm should have been mitigated during December, the pattern over the past several months has been disrupted, hindering monthly comparisons.

That caveat noted, the consensus expectation is that December payrolls included 143,000 new jobs. This figure is similar to previous months, with November seeing 146,000 new jobs. It is also consistent with the JOLTS report, which shows little change in the number of job openings over the past several months. By itself, this would tend to argue for December's new-jobs data to come in roughly similar to numbers from previous months. Still, it is also possible that businesses hired more people in December for jobs they posted in October and November, but couldn't fill due to the storm.

Aside from the storm, the fast-approaching "fiscal cliff" may cause some employers to postpone or even curtail hiring. We can determine this likelihood by looking at survey data from the Institute for Supply Management, which conducts twin surveys of manufacturers and non-manufacturers, the latter covering the far-larger service sector.

In the ISM Manufacturing Survey, we see that the Employment Index printed 48.4 in November, which is 3.7 points lower than the 52.1 reading reported in October. It is also the lowest reading since September 2009, when the Employment Index registered 47.8. Readings above 50 indicate that companies are hiring; below 50 means they are cutting employment. November saw the first month of contraction in employment following 37 consecutive months of growth in the Employment Index. The ISM notes that, over time, an Employment Index above 50.5 is generally consistent with an increase in the Bureau of Labor Statistics data on manufacturing employment. These hiring intentions data tend to lead job growth.

Of course, a drop in manufacturing employment may not be entirely due to a slowing economy. It may be related partly to an expected pattern in the inventory cycle. Yes, something as seemingly mundane as inventories can affect employment growth in manufacturing. As I recently wrote, inventories can affect manufacturing production, which can skew one's outlook of the big picture unless one properly factors in this pattern.

Non-manufacturers are also reporting a slowdown in hiring intentions, though these data still show a modest uptick in hiring. ISM's Non-Manufacturing Employment Index registered 50.3 in November, a decrease of 4.6 points compared with October's 54.9. Seven industries reported increased employment; 10 industries reported decreased employment; and one industry reported unchanged employment compared with October. Comments from respondents range from the positive ("We are beginning to create and hire a few more positions") to the less promising ("Attrition continues to be part of our cost-containment strategy").

If businesses are waiting to fill job openings ahead of the fiscal cliff developments in Washington, I would not be surprised to see a less-than-robust month of job creation in December. Yet we also might see a December rebound in hiring due to businesses filling positions that had been left open since November. Combine the weather disruptions with political uncertainty, and you have the makings of a report that is difficult to predict. As also mentioned earlier, however, the overall trend for hiring is generally similar as it's been in prior months. Thus, the consensus expectation of 143,000 jobs is a believable figure, within a margin of error.

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