Here's my brief outlook for tomorrow's employment situation report.
Let's compare various data out there to last month's data to get an idea of what to expect. Last month's official BLS statistics were 120,000 jobs created for the month overall, 140,000 private jobs and a nicely improved unemployment rate of 8.6%.
This is a job creation report generated by employment services giant ADP. It is estimated based on statistics from ADP's clients. It covers private jobs only. Note that the ADP report is often very different from the BLS official report and its accuracy is always under suspicion, although improving.
- November: 204,000 (revised from 206,000)
- December: 325,000
Overall comparison: Huge improvement.
ADP indicates a massive spike in private hiring for December. While the amount of improvement may sound surprising, based on the weekly claims data, I'm not that shocking. This is a very strong indicator for employment growth, despite ADP's traditional miscues.
Challenger Job Cut
A report generated by sifting through and categorizing various announcements of layoffs. It covers both public and private. I find it to be one of the more useful intra-monthly employment reports.
- November: 42,474
- December: 41,785
Overall comparison: Slight Improvement.
December looks better, despite another round of financial services layoffs. The big news here is that the big detractor to jobs, government, is starting to even out. This month's data continues the trend lower.
ISM Manufacturing And ISM Non-Manufacturing Indices
These are reports that survey manufacturing and service firms on many topics from orders to pricing to employment in their company. The respondents rate each category and a consensus is created with above 50 indicating expansion and below 50 indicating contraction. Employment outlooks are included, and the same scale used.
ISM manufacturing employment accelerated to 55.1.
ISM non manufacturing showed lower employment at 49.4 (slight contraction).
Overall comparison: Some Improvement.
The ISM Manufacturing report was hot for employment. However, the much larger services sectors were not. This creates a hard to read situation.
Weekly Initial Claims
This government report details the number of initial jobless claims that are filed every week. It is a good leading indicator of employment, and the data is quickly available. However, it's best to have an average to make it the most effective.
- Last Month Average: 395,750
- This Month Average: 373,250
Overall Comparison: Big improvement.
The weekly data have been outstanding, although it must be recognized that holidays can throw data off. Throughout last month I was surprised at the pace that initial claims had been falling. Continuing claims continue to fall as well. This bodes very well for employment this month.
Construction spending handily beat estimates last month, rising 1.2% over the previous month. Construction is one of the traditional first movers in employment out of a recession but has lagged in this recovery. Construction is an excellent driver of employment.
The U.S. is quickly becoming one of the best performing world economies, although it is still far from robust. Economic data continue to strengthen and accelerate, especially in construction, and it looks like finally housing is recovering. Retail spending is strong, confidence is rising, and the holidays were very successful.
The data this month is unquestionably pointing to an acceleration in employment. The ADP data are much higher than was anticipated, almost double, and I feel this has been supported by greatly improving weekly numbers. Manufacturing is showing strength and even government employment problems seem like they are starting to bottom (although this may well be an election year effect). World governments have even noticeably avoided their usual blunderings.
With this in mind, as well as the data above, I expect a substantially stronger employment situation report tomorrow. I'm guessing the overall non-farm payrolls will increase by about 160,000 and the private sector will be near the 200,000 range. The headline number should see a drop but keep in mind that last month's drop was unexpectedly high. I'd say it will fall to 8.3%.
The expectations are building high among analysts this month, but this optimism has yet to creep into the average person's mindset. Look for some excitement over the report this time around, as well as political talk from both sides of the aisle.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.