Employment Report

By Spencer

The BLS just wished the Obama administration a very merry Christmas with a very encouraging employment report. It was still a report that things are worsening at a lesser rate as far as employment was concerned, but other employment reports were positive. The unemployment rate fell to 10.0% as payroll employment was essentially unchanged at -11,000 and household employment rose 227,000. This data is consistent with initial unemployment claims falling below the 500,000 level as it has over the past few weeks.

Hours worked rose 0.6% from 98.5 to 99.1. This means that the fourth quarter will be starting with hours worked above the prior quarters level for the first time since 2007. Roughly, productivity growth plus hours worked is equal to private sector real GDP growth.Average hourly earnings only rose 0.1 so wage growth remains very weak– implying that unit labor cost are not creating inflationary pressures.

But the combination of weak average hourly earnings and a big jump in hours worked generated a 0.7% — about 8% on an annualized basis — increase in average weekly earnings. This should generate a very large jump in real weekly earnings going into the important Christmas shopping season.

Just on a technical note, both the payroll and manufacturing diffusion indices are moving up nicely, confirming the other signs of a bottom.

Interestingly, the payroll employment indicator appears to be turning ahead of the household survey data. Normally at bottoms the household survey leads. This unusual development probably reflects the difficulty small firms are experiencing obtaining bank loans.