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News Article Details

Job Market Showing Positive Signs

Source: WSJ

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Posted on 05 Jan 2012

A continued drop in the number of people seeking new unemployment benefits in the U.S. last week and a large gain in private sector employment reported by payroll giant Automatic Data Processing offered fresh signals that the labor market began to stabilize as 2011 drew to a close.

Separately, service-sector activity in the U.S. economy grew in December, at a pace similar to the prior month.

Initial jobless claims fell by 15,000 to a seasonally adjusted 372,000 in the week ended Dec. 31, the Labor Department said Thursday.

Last week was the eighth time in the past nine that new claims came in below the 400,000 mark, a positive sign as economists generally believe claims must remain consistently below that level to signal a real turnaround.

Economists surveyed by Dow Jones Newswires had forecast claims would fall by 6,000 to 375,000. For the week ended Dec. 24, claims were revised up to 387,000 from an originally reported 381,000.

The four-week moving average of new jobless claims, which smooths out volatile weekly figures, decreased last week by 3,250 to 373,250, the lowest level since June 7, 2008.

Among those adding jobs are discount retailer Dollar General, which said this week that it will hire 1,300 in California to staff 50 new stores and a distribution center.

Even with the recent decline in those seeking new jobless benefits, unemployment remains well above historic norms.

On Friday the government will release the December unemployment rate, the broadest snapshot of the labor market. Economists forecast that the rate will tick up to 8.7% from 8.6% in November.

While fewer Americans are losing their jobs, work remains scarce in areas of the economy that suffered the largest job losses during the most recent downturn, said Joanie Ruge, chief employment analyst with staffing firm Randstad Holdings USA.

"Until we see more job creation in manufacturing and construction, the unemployment rate is likely to remain above 8%," she said ahead of Thursday's report.

The Federal Reserve predicts an unemployment rate in a range of 8.5% to 8.7% at the end of 2012. With inflation expected to come down this year, the central bank is considering additional efforts to prop up the economy to meet its mandate to keep unemployment in check.

Thursday's report showed the number of continuing unemployment benefit claims--those drawn by workers for more than a week--decreased by 22,000 to 3,595,000 in the week ended Dec. 24. Continuing claims are reported with a one-week lag.

The unemployment rate for workers with unemployment insurance for the week ending Dec. 24 was 2.8%, compared with 2.9% the prior week.

The state-by-state breakdown in initial jobless claims, which is also released with a one-week lag, showed Georgia with the biggest decrease in initial claims, down 1,105 as there were fewer layoffs in the construction, service and manufacturing industries.

California saw the biggest jump in claims the week ended Dec. 24, up by 16,490 due to layoffs in the service sector.

A Labor Department official said there was nothing unusual about the latest state-level claims data.

Private Sector Adds Jobs

The private sector added a white-hot 325,000 jobs in December, according to Automatic Data Processing's monthly hiring report. The ADP report works to capture the monthly change in nonfarm private sector job changes. Forecasters had expected to see a gain of 175,000, following the revised 204,000 gain in November.

"December's advance was the largest monthly gain since December 2010, reflecting strong job creation across most industries," said ADP President and Chief Executive Carlos Rodriguez. "Small and medium-sized businesses were hiring at a similar pace," he said, adding that "job creation among large employers was also encouraging."

In the report, large firms added 37,000 jobs, while the service sector as a whole added 273,000 new employees. The goods-producing sector added 52,000.

The ADP report comes just ahead of Friday's release of the December nonfarm payrolls report. The Friday report is frequently the most important release in any given month's calendar of economic events, offering key insights into the health of the economy.

The challenge for financial markets is that the job data generated in the ADP report doesn't line up all that well with the data produced by the government. Economists currently expect that the improvements that have been seen in hiring over recent months will have continued into the final month of the year, with the nation expected to have added 155,000 jobs, versus the 120,000-job gain in November. The unemployment rate is seen ticking up a hair to 8.7%, from 8.6%.

Macroeconomic Advisers' Joel Prakken, who partners with ADP to create the report, was cautiously optimistic about the report. "If you put this figure in a larger context, you can still feel pretty comfortable there's a nice signal in this number," Mr. Prakken said. But the economist added "I want to be a little cautious about this number" given the magnitude of the gain.

Mr. Prakken noted it's entirely possible seasonal factors distorted the December number and made it look better than it should have. But he said the overall direction of the number is undeniable, and it's possible the unemployment rate will fall further from what is now a 8.6% level. Mr. Prakken did note that government hiring isn't captured in the ADP report, and that it may have a negative influence on the national hiring data due on Friday.

The very large job gain reported for December caught Wall Street off guard. "Nothing is at face value when it comes to ADP," said Eric Green of TD Securities. "We were bullish on the number Friday, comfortably above consensus, but not this bullish and do not expect a payroll gain tomorrow to reflect this ADP number," he said.

Nonmanufacturing Sector Expands

The Institute for Supply Management reported Thursday that its index of non-manufacturing performance moved to a reading of 52.6 from 52.0 in November. The non-manufacturing business activity/production index was steady at 56.2. Forecasters had expected the overall reading to hit 53.0 for the month.

Readings in the ISM survey above 50 indicate growth, and the higher the number, the more broad-based the gain. The numbers have nothing to say about the magnitude of growth, however. The non-manufacturing index is comprised mostly, but not exclusively, of service sector activity, which makes up most of America's economic output.

The report arrives at a time of growing optimism over the path of U.S. growth. Earlier this week, the ISM reported that factory activity showed a modest increase during December.

In the non-manufacturing report, employment contracted at a slower pace, with the jobs index at 49.4, from 48.9. Meanwhile, inflation rose at a steady pace, with the prices index moving to 61.2, versus 62.5 the month before.


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