Payrolls Disappoint Again - Analyst Blog

In a disappointing nonfarm payroll report for December, fewer than expected jobs were created. The ‘miss' was particularly striking given the many other reports that were pointing otherwise. On the positive side, the originally reported numbers for the prior two months were revised upwards and the unemployment rate unusually ticker lower.

The Bureau of Labor Statistics reported the creation of 103,000 jobs in December, with private sector jobs at 113,000. Expectations had moved up following the very strong ADP number on Wednesday – to 150,000 from the original expectation of 140,000.

The unemployment rate dropped to 9.4% from 9.8% in November; the expectation was for a drop to 9.7%. The November number was revised to a gain of 71,000 from the originally reported 39,000 number. In line with expectations, the average workweek remained unchanged and average hourly earnings ticked up.

The improving expectations for the December jobs number had been more than just the blowout ADP report. Almost all the indicators had been pointing up. In fact, if anything, it was the soft November report that was out of the ordinary. Please recall that in November, a significantly lower than expected number of jobs were created and the unemployment rate had moved up. Those numbers were revised today.

Looking back to the last  three months of 2010, October was only the month when we got a better than expected number. But despite the disappointments and volatility, the monthly run rate for private sector gains has been in excess of 100,000 in 2010.

The hiring of temporary workers has also remained in strong territory, which has historically been a very good leading indicator of future gains. This environment is particularly well suited for industry players such as Manpower (MAN).

The improving economic backdrop, particularly in the wake of the Fed quantitative easing program and the recently enacted tax extention/cuts, has been driving GDP growth rate expectations for 2011. Macro uncertainties that were part and parcel of the 2010 landscape and had been keeping management teams from resuming ‘normal' hirings are not expected to be major factors in 2011. This should translate into improved private job creation this year.

This environment should help consumer-centric players, ranging from automakers such as Ford (F) to retailers like Macy (M). Consumer discretionary players were strong performers in 2010. And the only way they can build on those solid gains would be if the labor market turns around in a meaningful way.
 
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