Econintersect warned that it was impossible to predict the BLS numbers for December 2010 in our analysis of the ADP payroll data earlier this week. Our rationale was that there was an unusual divergence between BLS and ADP – with BLS adding many more jobs then ADP over the last year.
We warned of a snap-back – and bingo, the BLS and ADP are now converging. In fact, this snap-back started last month. First, the headlines:
The unemployment rate fell by 0.4 percentage point to 9.4 percent in December, and nonfarm payroll employment increased by 103,000, the U.S. Bureau of Labor Statistics reported today. Employment rose in leisure and hospitality and in health care but was little changed in other major industries.
The major noise in the BLS data continues to be the unemployment rate. Through the magic of the way the number is derived – it has lost all context with understanding the employment situation in America. This rate is determined by survey – and not by hard data. The U-6 all in unemployment rate dropped this month from 17.0% to 16.7%.
The participation rate (ratio of the employed to potential workforce) decreased 0.2% to 64.3% – and further questions the methodology of how the unemployment rate is derived. And to add to the chaos in the data, the employment population ratio rose 0.1% to 58.3%. Both of these numbers are extrapolated from a survey – and are in conflict with each other and the unemployment rate.
The average weekly hours worked has remained constant for the last three months at 34.3.
ADP reports only private sector non-farm payrolls, so the BLS data is sliced to compare apples to apples.
From simple observation, it looks like ADP is adjusting towards BLS data. This month, ADP only revised its November data, while BLS revised October and November (all adjustments considered slight). See our previous analysis for further discussion of the relationships between ADP and BLS.
To complete the employment canvas, we have the release this week of Gallup’s interpretation of the employment picture. The following graphs are from Gallup.
When comparing all the jobs data, you are left confused. ADP is showing very positive trend lines for jobs. BLS is showing a slightly improving economy, but nothing to write home about. And the Gallup data has negative trend lines. Take your pick.
And we end on a statement by the National Federation of Independent Business (NFIB):
“Reports of net job creation continued to oscillate around the “0” line in December. Asked about changes in total employment over the last three months, 13 percent of owners reported increasing employment at their firms by an average of 3.5 workers while 14 percent reported (down two points from November) reducing total employment an average of 2.9 workers per firm. Clearly, December showed no surge in small business hiring. This produced a reduction of negative 0.07 workers per firm, basically unchanged from the “0” October reading and 0.01 reading in November. Typically, this measure would be in the range of 0.1 to 0.2 workers per firm in normal times. Still, the percentage of owners reporting higher employment levels is the second highest reading since December 2007 (the peak of the last expansion according to the National Bureau of Economic Research).
“The good news is that the two job creation indicators, job openings and job creation plans, both reached new recovery highs. The percent of owners reporting hard to fill job openings rose four points to 13 percent, the best reading in 24 months. Plans to create jobs gained two points, rising to a net 6 percent of all owners, the best reading in 27 months. These indicators point to a pickup in job creation activity for the first quarter of 2011. However, the small business sector continues to underperform on job creation in this recovery compared to other recovery periods.”
The employment picture is uncertain. It takes months to determine the direction of employment trends when, whatever the trend, it is weak.
Happy New Year from ADP – Record Employment Gain in December 2010 by Steven Hansen
ISM Non-Manufacturing Survey Quixotic in December 2010 by Steven Hansen