December was probably not a one-off.
On the Wednesday conference call following the release of the ADP’s December National Employment report on private-sector hiring, Mark Zandi, chief economist at Moody’s Analytics, the firm primarily responsible for the report’s preparation, told attendees: “It feels like the job market has kicked into a higher gear.”
It’s hard to blame Zandi for wanting this to happen. After what he described as a lot of “false starts” in the past 4-1/2 years since the recession officially ended, who doesn’t want to see some better employment news?
ADP’s report showed that private firms added 238,000 jobs. Though far from outstanding, that’s a very decent number which, if replicated for about the next three years, would finally get the job market into the neighborhood of where it needs to be. I for one would be glad to start arguing that the private sector has finally figured out how to maneuver around the Obama administration’s legal and regulatory web and its Keynesianism-on-steroids mindset, and is at long last beginning to genuinely recover the dynamism that many of us thought was lost forever.
Friday’s employment report from the government blew those hopes to bits. On a seasonally adjusted basis, the economy added only 74,000 jobs; the private sector added only 87,000. Though the official unemployment rate declined to 6.7 percent, the primary reason for its decline was the same as it’s almost always been in the four-plus years since its 10 percent peak in late 2009: Vast hordes of Americans stopped looking for work, bringing the labor force participation rate to a 36-year low. The job market malaise remains in full force.
Within minutes of the report’s release, Zandi was in complete denial on CNBC’s Squawk Box:
I wouldn’t pay any attention at all to these numbers. They’re not consistent with anything. … they’ll be revised up and away.
The problem is that Friday’s raw numbers before seasonal adjustment — that is, Uncle Sam’s best estimates of what actually happened — tell us that the job market took a significant turn for the worse in December that even extraordinary upward revisions won’t be able to negate:
Between February and November, the overall job market turned in improvements over the same month in 2012 seven out of ten times. The average improvement was almost 32,000. As seen above, December went the wrong way by an astonishing 170,000. That’s a turn for the worse of over a quarter million jobs when measured against November, and of over 200,000 compared to the average of the previous ten months.
The private sector deterioration is almost as bad. It shows eight of ten year-over-year improvements from February to November, with an average pickup of 24,000. Its December decay against November was 208,000, and over 180,000 compared to the previous ten months’ average.
Even if we give Zandi the benefit of the doubt and see combined upward revisions to December of 100,000 jobs in January and February — amounts which would be highly unusual in historical context, and are therefore not likely — that would still leave December’s overall turn for the worse against November at 151,000, and its decline against the previous ten months at 108,000. That would still be just plain ugly.
The smiley-face crowd’s next line of defense is that December was a one-off — some are even blaming inclement weather, which is pretty pathetic, given that those who predicted seasonally adjusted job additions of almost 200,000 already knew what the month’s weather was like — and that the generally upward trajectory seen during most of 2013 will resume. There are many reasons to question that optimism.
Christmas shopping season spending came in positive compared to 2012, but not by as much as originally hoped. Those sales increases were achieved with deep discounting, which will certainly cut into retaliers’ and suppliers’ profit margins, limiting their ability to expand hiring or perhaps to even hold on to the employees that already have during the early months of 2014.
December’s vehicle sales were only ahead of December 2012 by 0.3 percent. That too was blamed on inclement weather. That can’t possibly explain all of the 6.3 percent decline seen at General Motors.
Last year’s third quarter saw annualized economic growth of 4.1 percent. But about 40 percent of that came from a third straight quarter of inventory buildups. In the ADP conference call, Zandi cited unidentified statistics leading him to believe that inventories continued to increase at a brisk pace during the fourth quarter. If he’s right, the whiplash effect during early 2014 from possible overproduction may be significant, and could negatively affect hiring. Job seekers should be hoping that he’s wrong, and can perhaps take some comfort in ADP’s 154,000 private-sector job miss compared to the government’s Friday figures.
The final element of the mix is Obamacare. No one can possibly know what it will do to the economy and the job market, because the government has never tried to take over one-sixth of the economy.
Early returns aren’t good. Employment in the healthcare sector itself declined by a seasonally adjusted 6,000, ending a streak of 124 consecutive months of gains. Disastrous rollouts at HealthCare.gov and at many of the state insurance exchanges have sown massive confusion and uncertainty. One thing you don’t do as a business owner in such circumstances is hire a lot of full-time permanent people.
If there’s a silver lining to any of this, it may be that bad employment news might persuade some of those in Washington preparing to sell out their country by pushing for illegal alien amnesty, deceitfully known as “immigration reform,” to back off. But that’s probably hoping for too much.