A Closer Look At The December Employment Report

Nonfarm employment rose by 200,000 in December, as hiring jumped at couriers and messengers in order to handle the surge in online holiday retail sales. The unemployment rate fell to 8.5 percent.

A Stronger Report, But Not a Game Changer

While December's net gain of 200,000 nonfarm jobs topped consensus estimates, the report was helped by a host of special factors and also followed downward revisions to the two previous months. Three industries accounted for a disproportionate share of December's increase, including couriers and messengers, which added 42,200 jobs. Similar spikes were seen during the past couple of years and those gains were completely reversed the following month. Hiring in retail trade and construction may also have been impacted by temporary factors. The former added 27,900 jobs, mostly at department stores and clothing outlets. The latter was clearly helped by warmer than usual weather, leading to a 17,000-job rise in construction payrolls. Excluding couriers, retailing and construction, nonfarm payrolls rose 112,900 in December, which is close to the 100,000 and 112,000 gains reported for November and October, respectively.

Even with some distortions, the quality of jobs improved modestly in December. Manufacturers added 23,000 jobs during the month, with solid gains at producers of motor vehicles, machinery and computers and electronic products. Average weekly hours worked in manufacturing rose 0.2 percent in December, partially reversing a 0.5 percent drop in the prior month. Aggregate weekly hours in manufacturing rose 0.5 percent, which bodes well for industrial production. Hours rose even more dramatically in mining and construction, jumping 1.2 and 1.1 percent, respectively. Total hours worked rose at a 3.2 percent annual rate in the fourth quarter, which is the third best quarterly showing since the recession ended, consistent with our forecast for 3.7 percent real GDP growth during Q4.

The rise in manufacturing employment and hours worked should bolster income growth. Average hourly earnings rose 0.2 percent in December and weekly earnings rose 0.5 percent, reflecting the rise in hours worked. The better news on earnings helps reverse some of the earlier weaker readings. Nearly 43 percent of the jobs added during the past six months have been in relatively low paying industries, such as retailing, temporary staffing, leisure as well as hospitality and home health care. These industries have accounted for nearly twice as large a share of job growth in recent months as they account for the overall employment base.

December's drop in the unemployment rate looks fairly genuine, despite a 50,000 person drop in the labor force. The BLS updates the seasonal adjustment factors each December and the new numbers removed November's plunge. The jobless rate still drifted lower during the second half 2011, however, as civilian employment rose by 1.4 million compared to population growth of only 1.1 million over the same period. The number of unemployed has fallen by 927,000 since June, while the number of people not currently in the workforce rose by 617,000.

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