The Jobs Market Appears To Be Turning The Corner

A national employment report revealed a lower than expected number of job losses in December, while the service sector actually added jobs for the first time in nearly …

A national employment report revealed a lower than expected number of job losses in December, while the service sector actually added jobs for the first time in nearly two years. Some economists are now projecting job growth in the first quarter of 2010, although the unemployment rate is expected to decline very slowly. For more on this, see the following article from Money Morning.

Is the U.S. jobs market finally ready to move in the right direction?

According to a national employment report released Wednesday, that appears to be the case.

The U.S. economy lost an estimated 84,000 private-sector jobs in December, the smallest decline since March 2009, the report said. Also good news: Service providers – the largest component of the U.S. economy – actually added jobs, according to the national employment report, which is published by payroll processer Automatic Data Processing Inc. (Nasdaq: ADP) and consultant Macroeconomic Advisers.

“We’re clearly moving now in the right direction,” Joel Prakken, chairman of Macroeconomic Advisers, which compiles the survey for ADP, said in an interview.

That could even signal an eventual end in the “jobless recovery” that has plagued U.S. workers. Prakken is projecting U.S. payrolls will turn positive in the first quarter, creating job gains that will accelerate in the 2010 second half.

The 84,000 jobs lost in December was slightly below the decline of 90,000 projected by economists in survey conducted by Dow Jones Newswires. The estimated change of employment from October to November was revised by 24,000 – from a projected drop of 169,000 to a decline of 145,000.

Although this all means that the U.S. economy still actually lost jobs in December, “the details of the report were actually hopeful.   For the first time in nearly two years, ADP sees job gains in the service sector,” said Joel L. Naroff, chairman and chief economist for Naroff Economic Advisors Inc. in Holland, Pa.

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“There is little doubt that conditions are improving enough that we are going to have job growth return,” Naroff said. “The Challenger, Gray and Christmas layoff report [released yesterday] said that planned cutbacks were the lowest in two years, bolstering that view.   But the real concern for investors and the Fed should not be the month [job growth] appears but the trend once it does.”

Challenger, Gray, an outplacement firm, said companies cut 45,094 workers in December. That was down 10% from November and was the lowest reading since December 2007, the month the U.S. recession officially began.

The U.S. unemployment rate – slated for release in a government report tomorrow (Friday) – is projected to move from an even 10% in November to 10.1% in December. Macroeconomic Advisers is predicting the U.S. jobless rate will move above the 10% in the first quarter, and will decline very slowly thereafter. In fact, it will still be above the 9% mark when this new year comes to a close, the consulting firm said.

According to Naroff, firms that slashed their work forces last year to save money are now facing shortages as economic growth returns. That hints at a resumption in hiring happening sooner rather than later.

But that hiring won’t be strong – at least not initially.

“I don’t think that firms will start adding lots of people until they believe the recovery will be strong enough to support that long-term commitment,” Naroff said. “Right now, business confidence, which is rising, is not close to a level where that kind of hiring is likely to take place.  So let’s hope for some job growth appearing soon but remain cautious about the outlook for this year.”

The Bureau of Labor Statistics payroll report – slated for release tomorrow – could be important. The ADP survey tallies only private-sector jobs, while the BLS nonfarm-payroll-data report includes government workers.

According to the Dow Jones economist survey, analysts believe the BLS will report that December payrolls fell by only 10,000, following the 11,000 jobs lost in November. If that’s the case, that would be the best showing for the U.S. labor market since December 2007, when the U.S. economy added 120,000 jobs.

According to ADP, which processes one in six U.S. payroll checks, large businesses with 500 employees or more shed 34,000 jobs in December. Medium-sizes businesses lost 25,000 workers in December. Small businesses (with fewer than 50 workers) cut 25,000 jobs.

The U.S. service sector added 12,000 jobs, the first increase since March 2008, while U.S. factories pared their payrolls by 43,000. Prakken, the Macroeconomic Advisers chairman, noted that the job losses in both the factory and construction sectors rose from November to December, highlighting the unevenness in hiring.

“You want to see cyclical components in employment rising to feel very secure about the durability of the recovery,” Prakken said.

Naroff, the economist, said the manufacturing and construction sectors “remain basket cases.”

The Institute of Supply Management’s nonmanufacturing purchasing managers’ index rose to 50.1 in December from 48.7 in November. The December index was slightly below the 50.5 expected by forecasters. Readings above 50 indicate expanding activity.

The U.S. service sector accounts for 80% or more of the country’s economic activity.

This article has been republished from Money Morning. You can also view this article at
Money Morning, an investment news and analysis site.


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