December U.S. Employment, Auto Sales, ISM Non-Manufacturing

Household Sector Showing Some Momentum as Fiscal Headwinds Start to Blow

  • The December Payroll Employment Survey showed a gain of 155,000 jobs, in line with expectations.
  • The Unemployment Rate for December was unchanged at 7.8 percent, upwardly revised for November.
  • Average Weekly Hours increased for the month to 34.5. Hourly earnings were up 0.3 percent.
  • Vehicle Sales for December eased slightly to a still-strong 15.4 million units.
  • The ISM Non-Manufacturing Index for December improved to 56.1 as employment increased.

Payroll job growth in December met consensus expectations, up 155,000 for the month. The unemployment rate for November was revised up from 7.7 to 7.8 percent, and was unchanged at 7.8 percent in December. The unemployment rate for December, at 7.8 percent, is also unchanged from where it was last September. Earnings were up 0.3 percent for the month. Both the overall jobs numbers and the earnings numbers were
helped by gains in manufacturing employment, up 25,000 for the month, and by construction employment, up 30,000 for the month. Given the concern about fiscal policy, and the half-baked resolution of the Fiscal Cliff to date, today’s jobs numbers provide some reassurance that the economy did not completely fall out of bed at the end of 2012. I still expect to see a weak, but positive, GDP report for the fourth quarter of 2012 (the advance estimate is due out January 30).

For the three months of the fourth quarter we have seen payroll job growth of 137K, 161K and now 155K, not strong by any measure, but also not as weak as we saw at mid-year 2012. Housing related metrics continue to look good. Auto sales for December were solid at a 15.4 million unit pace, down just slightly from November’s surge to 15.5. Auto sales remain boosted due to the replacement of storm-damaged vehicles in the Northeast, but sales are sales. So there is some momentum in the economy, particularly in the household sector, as we begin to feel the headwinds of fiscal tightening. The good news in today’s jobs data is that the combination of more workers working longer hours for higher hourly wages is at least a partial counterforce to the drag from increased payroll taxes for most and increased income, capital gains and dividend taxes for the wealthy.

My expectation is that overalleconomic growth remains weak in the first half of 2013 with real GDP growth for the first two quarters of the year in the range of 1 to 1.5 percent, dampened by increased tax collections and reduced federal spending. Then we see an improvement in economic activity in the second half of the year. The odds of recession remain uncomfortably high for 2013, in the range of 40 percent, due to fiscal drag.

The ISM Non-Manufacturing Index for December improved from 54.7 in November to a solid 56.1, beating expectations. The employment and new orders sub-indexes both gained, exports remain weak. Anecdotal comments were generally positive. Growth was led by information, construction, retail trade and finance industries.

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