Goldman Post-Mortem On Unemployment And Non-Farm Payrolls
Jan Hatzius' mea culpa, after the BLS decided to kick the the NFP consensus squarely in the shins, is lacking. Most notable the discussion about lagging wage increases: you can't have inflation when people are making less then (or the same as) they used to make in nominal terms. Where is the marginal difference coming from: why the JPMorgan Chase Gold-plated Tungsten credit card of course.
Much Less Soggy than Expected
BOTTOM LINE: A much better employment report than anticipated, with only a small drop in payrolls and large upward revisions to prior months. Workweeks also lengthen, pushing indexes of hours worked up and probably signalling smaller (though still substantial) productivity gains. Unemployment decline reflects an increase in the household measure of employment (which had been substantially weaker than the payrolls); with the labor force having shunk over the past year, renewed increases in unemployment remain quite likely.
Nonfarm payrollls -11,000 in Nov vs GS -100,000, median forecast -125,000.
Unemployment rate 10.0% in Nov vs GS 10.1%, median forecast 10.2%.
Average hourly earnings +0.1% in Nov (mom, +2.2% yoy) vs GS +0.1%, median forecast +0.2%.
1. Payroll losses much smaller than expected with large upward revisions to prior months (about 80,000 each to net changes in Sep and Oct). This does not appear due to quirks in seasonal adjustment. Some had thought that the exceptional weakness in Nov 2008 would bias this year's Nov seasonal towards adding more to the raw payroll change; in the event, it went the other way (seasonals subtracted 91,000 this year; added 13,000 last year). The birth/death adjustment to capture the net effects of startups and firms going out of business, neither of which can be surveyed, could be a more important issue; it added 30,000 to the (unadjusted) payroll count in Nov. Even so, the report is clearly better than expected. The survey of households, which had been weaker, also improved, showing a 227,000 increase in employment (though -109,000 when adjusted to match the way in which nonfarm payrolls are tallied).
2. Predictably, the improvement was in sectors that tend to be cyclical. Thus, the loss in manufacturing jobs narrowed to 41,000 in Nov and shows smaller losses on revisoin; construction job losses were 27,000 in Nov, much smaller than the 55,000-70,000 pace of recent months. The temporary help category rose 52,000 in Nov and was revised up about 10,000 in each of the past two months. Government payrolls rose, but only by 7,000, so they were not a distorting factor in either direction. Reflecting the improved performance of total payrolls, the diffusion indexes -- the percentages of industries showing job gains -- rose to 40.6% for total nonfarm payrolls and 30.7% for manufacturing from 32.5% and 18.7%, respectively, in October.
3. Work schedules also lengthened in Nov, by 0.2 hour for the overall economy and 0.3 hour in the manufacturing sector. Overtime hours in manufacturing, another cyclically sensitive indicator, also rose by 0.1 hour. As a result, the index of total hours worked was up 0.6% on the month, reducing the downward trend into Q4 to -1.1% at an annual rate. With the bean count for fourth-quarter GDP fairly consistent with our +3% forecast for annualized growth, this surprise in hours probably reflects reducd (but still substantial) productivity gains.
4. The improvement in the household measure of employment pulled the jobless rate down to 10% (9.992% before revision) as the labor force shrunk further (by 98,000); the "U6" measure of underemployment that adds marginally attached workers and those working part time for economic reasons into the mix also declined, to 17.2% from 17.5%. The weakness in the labor force does create a presumption of further increases in unemployment -- or alternatively a high bar for the rate of job growth that is consistent with bringing it down further -- as some of this is bound to be reversed as the recovery proceeds. Over the past year, the labor force has fallen by nearly 1/2%; it normally rises about 1% per year.
5. Reflecting the high level of unemployment, wages rose only 0.1%, pulling the year-to-year trend down to 2.2%. We expect weakness in wages to continue for quite a while as the unemployment rate remains far above the level consistent with full employment (probably about 5%).