Private firms went on hiring spree in December

McClatchy NewspapersJanuary 5, 2011 

WASHINGTON — Private businesses hired new workers at a surprisingly energetic pace in December, according to a widely tracked job-tracking report released on Wednesday.

The ADP National Employment Report showed that private-sector employment rose by 297,000 in December. That's the highest monthly gain since the report's inception in 2000, and it's double or triple what was expected by mainstream economists.

Most important, job gains that high are what's needed to knock down the stubbornly high unemployment rate, which has been stuck at just under 10 percent for more than a year. Currently it's at 9.8 percent, with a new official BLS report on December employment due on Friday.

The new data suggest that last month's disappointing official jobs report from the Bureau of Labor Statistics may have been flawed, or at least a pothole on the road to recovery. Combined with several other recent positive indicators, the evidence that the economic recovery is strengthening appears to be mounting.

"This kind of number crosses a threshold in terms of its importance to the economy, the importance to the unemployment rate. More importantly, it's a strong enough number that you can start thinking about the virtuous cycle between employment and growth," Joel Prakken, the chairman of forecaster Macroeconomic Advisers, a co-creator of the monthly report, said in an interview.

By that, he meant that rising jobs lead to higher consumer spending, which generates more growth and jobs.

"We've been waiting for that cycle to kick in here, and it hasn't so far. Maybe we're going to see that now. That would be a nice way to start the New Year."

The ADP report is a heartening exclamation point on a string of positive signs. These include preliminary data showing that retailers had strong holiday sales; a report Tuesday showing that 2010 vehicle sales were stronger than expected in both December and for the year, a harbinger for manufacturing hiring; strong orders from purchasing managers; and the fact that the stock market closed 2010 at a two-year high.

"I think we are getting close to that point where we'll hit that magic 130,000 or 140,000 (new jobs) a month mark," in the BLS report. "That will spur consumer confidence, business confidence, that'll lead to more hiring," said Augustine Faucher, director of macroeconomics at forecaster Moody's Analytics in West Chester, Pa. "I think we're getting very close to hitting that sweet spot, where you start to have that virtuous cycle."

Much depends upon rising businesses and consumer confidence.

"Are they going to be confident enough to hire? And will consumers look at that and say, 'Job growth is good, so I am going to spend a little more.' It's psychological at this point," said Faucher.

The strong ADP report puts a spotlight on Friday's BLS December jobs report. November's report was surprisingly low, recording a sluggish gain of just 39,000 jobs.

One possible cause for that disappointing jobs report was that it may have missed a lot of holiday hires, which would show up both in the ADP report and Friday's BLS report.

Even if seasonal factors exaggerated Wednesday's ADP report, said Prakken, "that can't possibly be the entire story behind today's report . . . the ADP data shows that employment has been steadily accelerating since late summer."

That's a view shared by Jared Franz, an economist with mutual fund firm T. Rowe Price in Baltimore, who wrote in a note to investors on Wednesday that the ADP report "supports the view that November's disappointing BLS tally was a blip in a rising trend, for which an upside payback is in order."

Most forecasters predict a gain of 150,000 to 190,000 jobs in December in the BLS report.

The ADP report is derived from actual payroll data from private-sector firms, and Wednesday brought plenty of surprises. One was that small businesses created 117,000 jobs in December, while medium-sized firms added 144,000 positions.

That means that large corporations accounted for only 36,000 of the new hires, suggesting that growth in hiring comes from the bottom up. The brunt of the new hires — 270,000 — came in the services sector.

That's in line with another important indicator of economic activity. The Institute for Supply Management released on Wednesday its index of national services activity, and it rose to 57.1 in December from 55.0 in November.

Most economists had expected only a slight uptick. Any index reading above 50 indicates an economy in expansion. Wednesday's report, like the ADP, caught economists by surprise.

ON THE WEB

ADP report

ISM report

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