For the first time in 23 months, the U.S. economy is expected to create jobs. As you can imagine, the first month of job growth is a big milestone after almost 2 years of back to back job losses. Therefore we expect to see an unusual amount of volatility following the non-farm payrolls release on Friday since the bar is set high this month. Although it may be hard for most people to believe that companies are actually hiring, here are 3 reasons why job growth is possible:
#1 - 9 out of 10 Leading Indicators for NFPs Point to an Improvement in Labor Market
Believe it or not 58k jobs were created in the service sector in November due to hiring for business services, education and health care. So this would not be the first month of net hiring in certain parts of the economy. If job growth returns it should also come primarily from the private service sector with possibly a small contribution from government hiring.
Arguments for Better Non-Farm Payrolls:
1. Challenger Layoffs Decline for the Fifth Straight Month
2. 4-Week Average Claims Continue to Fall
3. ADP Reports Private Sector Job Losses at -84K, Least Since March 2008
4. Continuing Claims Falls to the Lowest since February
5. Conference Board Consumer Confidence Rises to 52.9 from 49.5
6. Employment Component of Service Sector ISM Rises to 44 from 41.6
7. University of Michigan Consumer Confidence Increases for the First Time in 3 months
8. Employment Component of Manufacturing Sector ISM Rises to 52
9. Zero Strike Activity
Arguments for Weaker Non-Farm Payrolls:
10. Monster.com Employment Index Drops 4 Points to Lowest Level Since July
Nine out of the ten leading indicators that we typically use to predict non-farm payrolls tell us that the labor market has improved. The employment components of both manufacturing and service sector ISM increased. However, it is important to note that the headline number suggests that manufacturing is growing much more rapidly than services. For instance, the Manufacturing ISM index has risen more than 23 points since reaching its low, while the Non-Manufacturing index has only gained 13 points. In addition, the services employment component, while improving this month, has contracted for 22 out of the last 23 months. In addition, the Challenger Layoffs report showed firings subside by 72.9%, while ADP reported the fewest job losses since March 2008. Further evidence for a boost in employment can be found in consumer confidence which, judging by the advances in both the Conference Board and University of Michigan indexes, is already responding to the improved jobs outlook. Jobless Claims also continue their descent with Continuing Claims falling to the lowest since February. The only cause for concern is the Monster.com Employment Index which fell to the lowest level since July, indicating a drop off in online job ads.
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