The Employment Situation for December – Cautiously Optimistic

The Bureau of Labor Statistics (BLS) released the Employment Situation report for December today. From the establishment survey, payroll employment increased by 200 thousand, with private payrolls adding 212 thousand and government payrolls declining by 12 thousand. The October and November figures were revised, lowering payroll employment by 8 thousand for the period.

From the household survey, the unemployment rate declined to 8.5 percent. A year-end update to the seasonal adjustment factors resulted in revisions back to January 2007, so the decline to 8.5 percent was from a revised November rate of 8.7 percent. As with the November figures, the decline was tempered by the contribution from departures from the labor force, in contrast to employment growth, but the share was lower than in November. In December 50 thousand people left the labor force, while 176 thousand joined the ranks of the employed.

Why cautiously optimistic? Overall, employment growth was broad based across industries and the workweek and earnings improved. Payroll employment may have regained some momentum in the second half of 2011 after a wobbly start to the year. Payroll employment has increased by at least 100 thousand every month since July.

And the unemployment rate may finally be trending down, after its steep rise during the recession, as GDP growth has strengthened over the course of the year. Our forecast for GDP growth in the fourth quarter is a robust 3.5 percent expansion, which should provide some momentum for labor market improvements, although it is possible that the unemployment rate may tick up despite stronger employment growth as discouraged workers return to the labor force. In any case, today’s report is an encouraging signal.

 

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