The economy's pace of jobs creation accelerated in December, according to this morning's update of the ADP Employment Report. Private sector payrolls increased by 215,000 last month, a robust increase from November's upwardly revised 148,000 gain. That's the biggest monthly gain since February. The implication, of course, is that tomorrow's official report on payrolls from the U.S. Labor Department will deliver upbeat news as well.
“The job market held firm in December despite the intensifying fiscal cliff negotiations in Washington," says Mark Zandi, chief economist of Moody’s Analytics, in an ADP press release today. "Businesses even became somewhat more aggressive in their hiring at year end. Most encouraging is the revival in construction jobs, although the December gain was likely lifted by rebuilding after Superstorm Sandy. The job market ended 2012 on a more solid footing.”
The degree of the gain in today's ADP number surprised most analysts, including yours truly, but the general trend of continued growth is hardly a shock. Jobless claims, for example, have returned to a pattern that implies further expansion in the labor market in the new year. Although today's weekly claims report shows a moderate rise last week, the broad picture continues to look favorable for payrolls, based on this indicator.
New claims rose 10,000 last week to a seasonally adjusted 372,000, the Labor Department reports. But the four-week moving average for this volatile series fell to 360,000 — virtually unchanged from the previous week's level, which is the lowest since 2008.
A more persuasive clue that the claims data continues to signal growth is the unadjusted year-over-year percentage changes for this series. Stripping out the seasonal adjustment factor and focusing on the annual trend reveals that claims slid 8% last week vs. a year ago. That's in line with the pattern for the past year or so. Save for the temporary pop from the hurricane in late-October, claims are still falling at a robust pace, and that's an encouraging clue for expecting that the labor market will continue to grow.
Today's news builds on yesterday's December update for the ISM Manufacturing Index, which moved above 50 again, which implies that the sector is still growing. December's economic profile still has a long way to go in terms of releases, but the numbers so far are encouraging. November's strong growth trend hinted at no less. All of which flies in the face of claims by some analysts that the economy is deteriorating. Emotionally speaking, that may sound like a reasonable diagnosis, but the numbers tell a different story.
Indeed, the message all along has been that the economic expansion rolls on. That's been clear if you've been watching a broad cross section of economic reports and quantitatively measuring the trend. Some observers of the business cycle have a habit of cherry-picking the numbers and drawing conclusions from small samples. In the end, however, the truth will win out. But don't hold you breath waiting for mea culpas. There's a general tendency in macro to ignore the mistakes and instead, make another forecast. That's fine, assuming the underlying methodology is sound. But as last year reminds, in vivid detail, sound methodologies in business cycle analysis are the exception rather than the rule.