The employment situation is a set of labor market indicators. The unemployment rate measures the number of unemployed as a percentage of the labor force. Nonfarm payroll employment counts the number of paid employees working part-time or full-time in the nation's business and government establishments. The average workweek reflects the number of hours worked in the nonfarm sector. Average hourly earnings reveal the basic hourly rate for major industries as indicated in nonfarm payrolls. (Bureau of Labor Statistics, U.S. Department of Labor) Why Investors Care
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Highlights
Today's employment report was stronger than expected with healthy job gains in the service sector and also with wages on the high side. Nonfarm payroll employment rose 167,000 in December, following a revised 154,000 gain in November and 86,000 increase in October. The consensus had expected a 100,000 boost in payroll jobs for November. November's job gain was revised up 22,000 from the initial estimate of a 132,000 increase while October was revised up 7,000 from the previous estimate of a 79,000 rise. Over November and October, the net revision was up 29,000. Nonfarm payroll employment is up 1.4 percent year-on-year for December - unchanged from November.
Average hourly earnings posted a sharp 0.5 percent increase in December, following a 0.3 percent rise in November. December's figure was above the consensus forecast for a 0.3 percent gain. Average hourly earnings are up 4.2 percent on a year-on-year basis in December, the same as for November. The average workweek in December was unchanged from 33.9 hours in November - equaling the consensus expectation for December.
The civilian unemployment rate was unchanged from 4.5 percent in November - also matching the consensus forecast for the unemployment rate in November. Household employment jumped 303,000 in December, following a 286,000 boost in November. The labor force advanced 326,000 in December, while the number of unemployed rose 23,000. The employment-population ratio came in at 63.4 percent, up slightly from 63.3 percent in November.
Within the payroll survey, gains were strong in services while goods producing jobs were weak. Overall service-providing industries were up 178,000, following a 195,000 increase in November. Gains were led by professional & business services, up 50,000; education & health services, up 43,000; and leisure & hospitality, up 31,000. Goods-producing jobs fell 11,000 with construction down 3,000 and manufacturing down 12,000. Natural resources & mining rose by 4,000.
Aggregate hours in manufacturing slipped 0.1 percent in December, following a 0.4 percent drop in November.
Today's employment report was stronger than expected and has pushed Treasury rates up. Equities are likely to see the numbers as a negative due to the impact on delaying the Fed in cutting rates. Both the strong employment gain and wage gain will be of concern to the Fed.
Nonfarm payroll employment posted a 132,000 gain in November, following a revised 79,000 rise in October. In the latest report, payroll gains were healthy in services while construction and manufacturing were weak. The unemployment rate remained low despite an uptick to 4.5 percent from 4.4 percent in October. And despite tight labor markets, average hourly earnings slowed to a 0.2 percent gain in November, following a 0.4 percent gain in October. The average workweek in November was reported at 33.9 hours, unchanged from October. The tight labor market remains the largest concern of the Fed for ensuring that inflation pressures come down before lowering interest rates.
Nonfarm payrolls Consensus Forecast for December 06: 100,000
Range: 45,000 to 125,000
Unemployment rate Consensus Forecast for December 06: 4.5 percent
Range: 4.4 to 4.5 percent
Average workweek Consensus Forecast for December 06: 33.9 hours
Range: 33.9 to 33.9 hours
Average hourly earnings Consensus Forecast for December 06: +0.3 percent
Range: +0.3 to +0.4 percent
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During the mature phase of an economic expansion, monthly payrolls gains of 150,000 or so are considered relatively healthy. In the early stages of recovery though, gains are expected to surpass 250,000 per month. |
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The civilian unemployment rate is a lagging indicator of economic activity. During a recession, many people leave the labor force entirely, so the jobless rate may not increase as much as expected. This means that the jobless rate may continue to increase in the early stages of recovery because more people are returning to the labor force as they believe they will be able to find work. The civilian unemployment rate tends towards greater stability than payroll employment on a monthly basis. It reveals the degree to which labor resources are utilized in the economy. |
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