Previewing Today's Non-Farm Payroll Report
One month after what was dubbed the most anticipated jobs report of all time, we are getting what may be the biggest dud of a monthly NFP update in recent years. The reason is twofold: i) everyone knows it will be ugly, with consensus looking at a +87,000 print, far below the mid-100s seen in the recent past, whether due to a catch up to the pre-election "spin" or due to impacts from Hurricane Sandy and ii) the report will have so many 'adjustments' embedded in it, anyone with a 1st grade econ-propaganda education will be able to spin it upward as they see fit. What is certain is that the broader mainstream media will continue to focus purely on the quantitative aspect of the report, while the real story over the past 3 years has been a qualitative one: a shift to lower paying jobs, a painfully slow (if any) rise in average hourly earnings, a transformation of the US labor pool to "Just In Time" inventory as virtually all new hiring needs are met by temps and part-timers, and finally a secular shift to an older labor force, as job creation in the 25-54 category since January 2009 is still negative!
One person who has done a good job at previewing today's largely meaningless NFP report is Bloomberg's Joseph Brusuelas in today's BBG Brief report.
Some of his observations:
The November employment report will require more interpretation than usual to account for both the impact of Hurricane Sandy and the changes in industry hiring trends that are behind the recent improvement in jobs gains. The hurricane affected an area responsible for about 16 percent of overall U.S. output.
A sampling period that was one week shorter and a possible slowdown in hiring ahead of the fiscal cliff may also make the report more difficult to interpret.
The difficulties in disentangling all these special factors means investors may want to compare the difference between the October and November jobs estimates with the 12-month average growth of 163,000 private sector jobs.
Industry level analysis may also provide insight regarding the direction of the labor market.
The major impacts on the November employment report will be a slowdown in service sector hiring clustered in the U.S. Northeast in the establishment survey, and the number of individuals classified as not able to work due to weather in the household survey.
After accounting for special factors, the underlying trend of a 150,000 gain in total employment over the past 12 months should probably hold once these considerable storm-related and fiscal cliff distortions fade. The Bloomberg consensus forecast is for total employment gains of 87,000 and that the unemployment rate will hold steady at 7.9 percent.
Naturally the BLS is expected to apply its black box adjustments, whose methodology is explained more or less nowhere, and to boost the number.
The BLS will probably adjust its estimation procedures to reflect the increase in non-respondents in the six major states affected by the storm, similar to what it did following Hurricane Katrina in 2005. Outside of those areas employment gains should remain steady.
But what can not be adjusted out is that as the chart below shows, the bulk of all secular job "gains" have been in low-quality, low-wage jobs.
The report may also show temporary weakness in the four low-wage subsectors — leisure and hospitality, health care and social assistance, retail and temporary jobs — that have been responsible for about 51 percent of the private sector job growth observed over the last year. This reflects the low-wage bias due to the economy’s enormous labor slack, which is the primary reason weak wage growth has been such a persistent theme throughout the recovery. Jobs in utilities and transportation may also be marginally affected by the storm.
Outside of these industries, one pressing cause for concern is the negative trend in manufacturing, which has lost an average of 5,000 jobs over the past three months. That may be tied to large industrial firms worried about slower external demand and the fiscal shock scheduled to take place next year.
In other words: non-jobs paying non-wages, perpetuating the non-thinkers' belief in the non-recovery. Just another day in your friendly neighborhood banana republic.
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