US December employment report positive overall, I don’t think it gets much better than this over the short term

The year of employment statistics from US looks to have ended with actually positive report. Non-farm payrolls grew by 200k and U3 rate edged down to 8.5 per cent. The U3 rate is based on the household data rather than payroll figures. From said data we can observe that employment increased by 186k and unemployment was down by 226k. These are the seasonally adjusted figures and in December the factors can be pretty significant. Not in labor force is up by another 194k after being up by 290k last month and 146k in October. This fully explains the drop in unemployment rate so if you see the U3 rate drop over last few months being trumpeted, it is false. With any reasonable participation rate, the unemployment rate would be in excess of 10 per cent.

That said the December report appears to be overall positive. The US economy needs somewhere around 150k new jobs every single month not to get any worse and there were few of those last year, the average being 137k jobs a month. Moreover, manufacturing jobs increased, albeit at a slow pace, and the government shed a lot of jobs, another positive factor. The strength in the service sector is slightly questionable given that NMI employment index has been negative for 3 of the last 4 months Furthermore, both it and the manufacturing employment index were in a negative trend most of the year. If the European situation does not get materially worse (which does not seem likely), I would expect the US employment market this year to be quite similar to 2011. If the BLS were to start actually counting those not in labor force as unemployed, the official U3 rate does not have much downside.


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