US job market shows signs of life

The ailing US labour market gave fresh signs of improvement in data published last Thursday, with the private sector reporting a massive increase in hiring in December.

Job creation is at the top of the presidential election race

Businesses added a huge 325,000 net jobs, their highest level in a year and eclipsing the 180,000 figure forecast by most analysts, payrolls firm ADP said.

The gain was almost double the average monthly gain since May, when job creation slowed sharply, ADP said.

But some analysts cautioned that the monthly number is often an unreliable indicator of the actual number of jobs created in the month.

Meanwhile the government reported new claims for unemployment benefits — a signal of the pace of layoffs – fell again last week, keeping up a steady two-month decline.

In another positive sign, planned job cuts announced by US employers declined 1.6 per cent in December to 41,785, their lowest monthly total since June, according to global outplacement firm Challenger, Gray and Christmas, Inc.

The reports came ahead of the keenly awaited official monthly labour market data on Friday.

High unemployment has blighted the world’s largest economy as it struggles to gain momentum after the end of a steep recession in June 2009.

Employers’ reluctance to hire in the face of tepid economic growth has put jobs creation at the top of this year’s presidential election race.

President Barack Obama and his Republican opposition offer starkly different views on how to achieve it. The Democratic president is pushing for government support, while Republicans argue that government intrusion is holding the private sector back.

Nomura analysts pointed out that ADP’s December number tends to be distorted because unlike the Labour Department count of employment, which measures the number of paid jobs in a certain period, the ADP series measures the number of people listed on firms’ payrolls at a given time. “Companies often keep all employees on the payroll all year – even if they are not being paid – for tax purposes,” they said.

BMO Capital Markets Economics analyst Robert Kavcic said the strong ADP report probably should be taken with “a grain of salt”.

“It’s important to keep in mind that this report is notorious for missing the actual payroll number by wide margins on a month-to-month basis,” he said.

Ian Shepherdson, chief US economist at High Frequency Economics, called the ADP report “spectacular”.

“It fits our view that the economy is in better shape than is generally believed, but we have to be cautious,” he said.

“ADP is the single best indicator of official private payrolls but the error in single months can be more than 200,000 either side,” he said.

The Labour Department reported last Thursday that weekly jobless claims had resumed their downward trend after a one-week break.

New claims for US unemployment benefits fell to 372,000 in the week ending December 31, down 15,000 from the prior week, the department said.

The downward trend also was confirmed in the four-week moving average, which fell to 373,250, the lowest level since early June 2008.

Initial jobless claims have been below 400,000 for eight straight weeks.

“The jobless claims data continue to point to a pickup in the pace of job creation, although we are entering a period where volatility around year-end has made claims a less reliable indicator,” RDQ Economics analysts said.