Today’s jobs report came in light after a robust private sector ADP number of ~+300,000 midweek raised expectations. Non-farm payrolls came in at a gain of 103,000 vs. 150,000 expected, while the unemployment rate came in surprisingly at 9.4% vs. 9.7% expected.
Each of these components of the jobs report come with a significant caveat, however. First, with the “better-than-expected” unemployment rate, it is possible discouraged workers are leaving the labor force as the pace of hiring continues to be slow. The unemployment rate has several moving parts that force investors to take it with a grain of salt. Nonetheless, the psychology of a lower unemployment rate will boost the mood of the retail public.
More heed should be paid to the raw non-farm payrolls number. Although the number missed heightened expectations, considering revisions over the past few months, it is not a disaster. The prior change was revised from +39k to +71k, following a similar revision in the previous month. Considering those revisions, the number comes in around expectations.
While employment is a lagging indicator of an economic recovery, the paltry gains are still somewhat discouraging. Even a meet of the 150,000 expectations this morning would have represented a drop in the barrel. Former Fed Governor Kroszner commented soon after the report that the US economy is not showing significant signs of improvement, but productivity remains high, which leads me to revisit an important concept.
Worker productivity is a more leading indicator that can forecast likely future jumps in hiring. Corporate earnings have continued to steadily improve over the last two years, while employment and housing remain drags. Companies have focused on cost cutting to grow the bottom line, which includes squeezing more productivity out of each worker. Marginal productivity gains per worker have been falling steadily during the recovery and starting to stagnate. Thus, the only way for companies to continue to grow is to begin hiring new workers. Worker productivity indicates an impending wave of hiring from American companies. This article in Businessweek from December suggests a few other leading indicators.
For active market commentary follow the jobs report, watch Scott Redler post-jobs number Morning Call below.
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