Friday, February 6, 2009

Commentary On The Payroll Number

Straight from the mouth of the people who can't wait to pay you back your TARP money (Goldman of course). For what it's worth the masters of the universe have been surprisingly objective lately.
Nonfarm payrolls -598K in Jan vs. GS -475K, median forecast -540K
Unemployment rate up 0.4 points in Jan to 7.6% vs. GS and median at 7.5%.
Average hourly earnings +0.3% in Jan (mom, +3.9% yoy) vs. GS and median +0.2%.

1. Job losses were in the larger end of the range of expectations for this report, with nonfarm payrolls down nearly 600K and the household survey showing job losses of 1.239 million in the month. Revisions to the immediately preceding months were down, as has been the pattern lately, though somewhat less substantial than in recent months -- a total of 66K for November and December combined.

2. This is the month when benchmark revisions are applied, and while the revision to the benchmark reference month -- March 2008 -- was as small as BLS had advertised (-17K vs. a preliminary estimate of -21K), the monthly changes through 2008 now show a much larger and steadier decline in payrolls than before. On average, the monthly changes from January through October were -32K; with the new numbers, payrolls have dropped at least 100K per month since January 2008 (that's the last one with less than 100K).

3. In January 2009, the job losses were even more widespread than in prior months, especially in manufacturing. The diffusion index for this sector -- measuring the percentage of industries reporting job gains -- fell to 7.8%, the lowest on record since these numbers were published beginning in 1991. This means that more than 11 of every 12 industries was laying off workers in a sector that, while barely one-tenth of the work force, counted for just over one-third of the job losses.

4. While losses were concentrated in manufacturing, they were fairly pervasive elsewhere as well. Almost 3 out of 4 industries (counting those in manufacturing) reported declines in payrolls. Only government, education, and healthcare showed gains among the main categories.

5. The rise in the unemployment rate occurred despite a large exodus from the labor force (-731K), reflecting the huge job losses already mentioned in the first item. With the unemployment rate starting the year at 7.6% and rising several tenths of a percentage point per month, our year-end call for a 9% rate looks like it could have upside risk.

6. Reflecting both the sharp cutback in payrolls and further shortening in the manufacturing workweek, the index of hours worked fell 0.7% in January. On a fully trended basis (i.e., assuming similar declines in both February and March), this would imply a setback in total hours worked on the order of 8.5% at an annual rate for the first quarter, implying downside risk to our estimate of -4.5% for the annualized decline in real GDP. The assumption of ongoing declines does not look so outrageous when stacked against the fact that this index has fallen between 0.6% and 0.9% in each of the last five months.

7. Wages were the bright spot in this report, as they rose 0.3% in the month to a year-to-year increase of 3.9%. This is somewhat at odds with the wage index of the ECI, raising the possibility that changes in the mix of workers and/or the shortening workweeks may be boosting the hourly average. Nonetheless, at a time when prices are flat (in core) to falling (in headline), this may provide a modest cushion to a falling economy.
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