By Carlos Guillen
The highly awaited government jobs data is here, and the first reaction to the numbers was a clear Wow! At the moment Americans are still struggling with the consequences of the most recent recession, and while there are signs of improvement, the overall picture is still one of difficulty for many out there without work, but Friday's results are quite a surprise.
According to the latest data from the Department of Labor, the unemployment rate in November clocked in at 7.7 percent, landing below the Street's consensus estimate of 8.0 percent and decreasing from the 7.9 percent posted in the prior month. The household survey showed that those employed declined by 122,000, and those unemployed decreased by 229,000. Discouraging, however, was that those not in the labor force increased by 542,000. In essence, the jobs market shed a good chunk of people, which led to a lower unemployment rate.
If we include "Part time for economic reasons" of 8.2 million and the "Marginally attached to the labor force" of 2.5 million to the unemployed number, we calculate an unemployment rate of 14.4 percent, which decreased from the 14.6 percent posted for the prior month. While it is indisputable that the unemployment rate is still painfully high, its recent direction is a bit encouraging.
Perhaps the more favorable aspect of the employment report was that non-farm payroll employment in November (derived from the establishment survey) increased by more than expected. The report showed that the increase in non-farm payrolls was 146,000 while the Street's consensus called for a gain of 90,000. This was quite a bit of a positive surprise given that this past Wednesday, according to ADP (with a new methodology), 118,000 private sector jobs were gained during November, which landed lower than the Street's estimate calling for a gain of 125,000 jobs. The nonfarm increments were, however, revised lower for September and October to 132,000 (from 148,000) and 138,000 (from 171,000), respectively. We should note that during the last 12 months there have been 189,000 jobs added per month, which is an improvement from the 174,000 jobs added per month in the prior 12 months. From our estimates, we calculate that the economy needs at least 130,000 jobs added monthly to keep things as they are, so the yearly jobs gains over the past two years are certainly in the right direction.
It is interesting to note, however, that despite expectations that super-storm Sandy would have generated noise in the data, it appears that there were no such effects, as the Bureau of Labor Statistics claims that hurricane Sandy did not substantively impact the national employment and unemployment estimates for November. This has many on the Street puzzled, but of course this is preliminary data subject to revisions.
Aside from a better than expected non-farm employment result, compensation also improved a bit. In November, average hourly earnings for all employees on private non-farm payrolls ticked up by four cents to $24.63. However, over the past 12 months, average hourly earnings have risen by 1.6 percent, the smallest gain since May of last year.
Taking away some of the enthusiasm brought by the government jobs numbers was that consumer sentiment landed worse than expected. The University of Michigan Consumer Sentiment December preliminary result landed at 74.5, which was much lower than the Street's expectation of 82.4. Moreover, the result significantly declined from the 82.7 level reached in November and represented the lowest reading since August of this year. Consumers are still increasingly worried about the upcoming fiscal cliff dilemma, which is the main reason for the decline in sentiment. Quite surprisingly, more consumers are finding their current financial positions to be improving, but then again, a bit more than half of consumers still see their finances declining. For perspective, a year ago, close to two-thirds reported worsening financial positions.
Also disappointing was that consumers' outlook for employment, the economy, and their personal finances declined. The expectations index decreased to 64.6 from 77.6, landing at the lowest level since December of last year. At the moment, a positive direction of confidence will be dependent on the promise of no higher taxes, except on the wealthy.
Overall, investors' enthusiasm after the employment data was short lived as the reality still stands that the employment backdrop is not likely to significantly improve into 2013. While consumers have held their heads up high in face of adversity, we believe their confidence will continue taking a hit in the coming months as the employment backdrop continues to drag. This will surely have a negative impact on consumer spending and consequently on gross domestic product growth in the near term.