Eco Analysis - US Employment Report: Surprisingly Good (B. Jones)

Eco Analysis - US Employment Report: Surprisingly Good (B. Jones)

■ Nonfarm job growth eclipsed all projections for a second straight month in November

The Bureau of Labor Statistics (BLS) reported that nonfarm payrolls expanded by 146K in November, following a revised 138K rise in October (was 171K) and 132K increase in September (was 148K). Last month's print exceeded both our (122K) and the median Street (85K) expectations. Indeed, for the second month in a row, the front-month job gain eclipsed all published economist projections.

■ November payroll gain particularly impressive in light of devastation from Hurricane Sandy

Last month's payroll increase was particularly impressive given the adverse backdrop created by Superstorm Sandy. As expected, the BLS provided a “black box” on the front of the monthly release. Their analysis suggested that the recent tempest did not substantially impact the national employment and unemployment estimates for November. Survey response rates were within normal ranges. It is important to recognize that the BLS is referring to the data collection process and not the actual results. The number of nonag. employees who were unable to work during the reference period in November was 369K, well above the 65K average for that month posted over the 2007-11 period and even exceeding the 230K assumption in our forecast by a country mile..

■ Although narrower than in October, job gains were widespread across industries

We were impressed by the reported breadth of job gains across industries last month. The one-month diffusion index - like an ISM measure centred at 50 - slipped by four points to 59.0, but remained well above the break-even mark. The three-month diffusion index - one of the inputs into our modelling process jumped by almost three points to a six-month high of 63.5. The six-month gauge held steady at 63.0. The details of the report revealed that private service-producing concerns drove the hiring bus in November. Private service-producing payrolls expanded by 169K, almost matching the 171K positions created in October. As would be expected given the early observance of Thanksgiving (Nov 22), trade and transportation employment jumped by 69K, 53K of which was direct retail hiring. Business service providers added 43K, with temporary help accounting for almost half (18K) of that rise. The remaining service-producing areas all added workers during the reference period: leisure & hospitality (23K), education (18K), information (12) and financial (1K). In contrast to service providers, goods producing employment contracted by 22K last month, with all but a fraction of the decline (20K) attributable to reduced construction jobs. Factory payrolls fell by 7K, erasing almost three quarters of the reported October gain. A tug of war between increased state and local employment (+4K) and reduced federal jobs (-5K) pared the aggregate public job count by 1K. Of particular note, the aforementioned revisions to both the previously posted job counts for September and October were attributable to the public sector, in particular non-federal payrolls. Government employment dropped by 51K in October (was -13K), after rising by 10K in September (was 20K).

■ Civilian unemployment rate dropped to lowest level since the end of 2008

The national jobless rate fell by two ticks to 7.7% in November - the lowest reading since December 2008. The reported decline was driven by a partial reversal of labour force increases posted over the September October span. The labour force contracted by 350K last month, erasing roughly one third of the 996K jump over the prior two months. Meanwhile, household employment slipped by 122K, offsetting little of the 1.28-million pop over the previous two-month period. The labour force participation rate moved two ticks lower to 63.6%, erasing the reported October rise.

■ Other establishment survey figures matched consensus expectations

The remaining portions of the establishment canvass were in line with Street projections. Average hourly earnings accelerated during the reference period, rising by 0.2% and pushing the year-to-year growth rate of this nominal compensation measure one tick higher to 1.7%. The average workweek of all private employees held steady at 34.4 hours. Yet, the addition of 147K net new workers pushed the index of aggregate weekly hours 0.2% higher, after a 0.1% dip in October. The latest figures place total hours worked over the October-November period 1.1% annualized above the July-September average, after a 1.0% third-quarter advance.

JONES Brian