Reasons to be Optimistic about December Jobs Report(1/9/2014)

On Friday the Labor Department will release its latest report on employment and unemployment during the month of December. Most economic forecasters expect an okay report, but not one that is significantly better than the report in November. In fact, some are suggesting the unemployment rate may increase even from 7.0% to 7.1%, and the number of new jobs created might decline below 200,000.

 In contrast, I believe there’s every reason to be more optimistic than the average economic forecaster is. Based on the strong performance of the economy over the last several months, it is reasonable to expect more new jobs were created in December than the number in November (203,000), and the unemployment rate may fall below 7% for the first time in years.

Why? Because virtually all important indicators, with the exception of automobile and truck sales, increased significantly over the last reporting period. This suggests the number of workers entering the labor market, as well as those finding jobs increased in December. A careful read of the indicators suggests the number of new jobs created should be above the 200,000 threshold, and the unemployment rate will likely below 7%.

In November, the economy had its best performance in two years. However, if viewed more broadly, the number of indicators that registered positive improvements suggested the economy in November registered its strongest performance since the recovery began 4 ½ years ago.

Here are several reasons to be optimistic about the economy.

  1. During the third quarter, the economy grew by an unexpectedly high rate of 4.1% and more importantly, third-quarter productivity (total output per worker) increased by 3%.
  2. The ADP Employment Report, which is an advanced barometer of the direction of hiring, increased significantly each month over the last five months. Starting in August, the ADP report showed 151,000 jobs were created. Each month since that time, the number of new jobs increased. ADP’s late this report, which covers the month of December, indicated 238,000 new jobs were created.
  3. Consumer confidence took a major uptick in December from 72.0% to 78.1%. This increased confidence was reflected in more spending on the part of households and less savings.

Against this backdrop of positive news, the only perplexing development last month was the significant decline in automobile and truck sales, which decreased by 1 million units.