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Reading Indicators
December 6, 2014

Something's Not Working in November Jobs
At least a portion of last month’s high job growth may be due to overly aggressive seasonal factors.
By Robert Johnson, CFA
+1 (312) 696-6103

It wasn't a great week for world markets with most emerging markets down more than 1%,
European equities about flat, and the S&P 500 up about 0.4%. Oil prices are still weighing heavily on commodity indexes, which were also down over 1% for the week. U.S. 10-year
Treasury rates were modestly higher at 2.3%.
The end of the week was decidedly better than the first part, with a strong U.S. employment report wiping out some of the bigger weekly losses in equities and commodities. The U.S. is again assuming its position as an engine of world economic growth.
The jobs report did far better than expected with job gains of 321,000, a better month than at any time since 2012. However, I am not sure if that data reflects misplaced seasonal factors or newfound economic strength. Keep in mind that November has been one of the stronger employment growth months of the year, and seasonal factors may not have caught up with that phenomenon.
U.S. manufacturing data remained unusually strong even as other world manufacturing reports teetered between growth and decline. Auto sales also looked unusually strong, aided by an extra day of selling and a new emphasis on Black Friday sales. Still, the high level of auto sales combined with great restaurant sales seem to suggest that consumers are feeling better about their short- and intermediate-term situation.
Employment Report Good, but Not a Game-Changer
On the surface, the jobs report looked fantastic, with job growth of 321,000 for the month of November, the best result of calendar 2014 and the best report since 2012. The jobs number was well ahead of the 12-month average of 228,000, the consensus estimate of about 230,000, and our estimate of 255,000. Even better, that huge growth came despite an upward revision to the jobs figures that totaled 44,000 for September and October combined.
However, November was also a great month a year ago when 274,000 jobs were added.
Indeed, November has generally been in the top half of the 12 months for job growth over the past four years. So maybe at least a portion of the high growth was due to overly aggressive seasonal factors.


These quirky seasonal adjustments, bad weather, and strikes have wreaked havoc on the month-to-month employment numbers. Month-to-month variance in jobs added has been particularly high lately. For 2014, monthly job growth has ranged from 84,000 to 321,000 jobs added, despite a relatively stable economy. Poor months for job growth have generally been followed by good ones and vice versa. The U.S. was overdue for a good report, with both September and October coming in well below estimates (at least as originally reported).
Unfortunately, tough seasonal issues and the normal reversion-to-mean pattern suggest that either December or January job growth could dip below 200,000 yet again.
That's why we always prefer to look at the year-over-year data, averaged over three months, to get a truer picture of economic activity. There was some improvement here, too, but not nearly as drastic as the raw month-to-month growth for November.

Something’s Not Working in November Jobs Report | Reading Indicators | Robert Johnson, CFA | December 6, 2014


Average non-farm employment growth on this annual basis was 2.0% for November, which includes the wayward government sector that is barely growing at all. (Excluding government, private-sector job growth is running at 2.3%) That 2% job growth is very consistent with the 2.3% GDP growth we are anticipating for 2014. Productivity gains generally mean that employment growth has to run below overall GDP growth. If anything, the current gap between employment growth and GDP growth is quite narrow, suggesting the employment growth could slow in the months ahead.
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