JPMorgan Chase Bank NA, New York Robert Mellman

Economic Research Global Data Watch January 6, 2012

United States
Stronger-than-trend December labor market report supports forecast of 3.5% GDP growth in 4Q11 Much of the strength is transitory and will unwind, consistent with forecast of slower growth in 1Q12 Decline in jobless rate in the past year mainly reflects a lower participation rate, slower population growth The year 2011 ended with a labor market report for December that was stronger than the recent trend. Payroll employment rose 200,000, up from an average gain of 143,000 over the prior three months, and the average workweek increased slightly to 34.4 hours. The payroll proxy for private sector labor income (aggregate hours worked times hourly earnings) rose a very solid 0.7% samr. But, importantly, strength relative to the recent trend appears to mostly reflect temporary influences, including unusually mild weather and improper seasonal adjustment for some holiday hiring, that are likely to be reversed in January. The household survey was also on the strong side. The unemployment rate declined another 0.2%-pt to 8.5%, and there was another sharp monthly drop in the number of people working part-time for economic reasons. These results were probably also helped by the temporary factors that boosted payroll employment. Other December data released this past week were more mixed, with both December ISM surveys posting modest gains and December new car and light truck sales holding at their November pace of 13.6 million saar following three consecutive monthly increases. Upcoming data will be important in refining the estimate of real GDP growth last quarter, currently 3.5% saar, particularly reports on December retail sales (Wednesday), November inventories (Thursday), and November foreign trade (Friday).

Payroll proxy of private labor income and PCE price index

%ch saar, 3m/3m 6 5 4 3 2 1 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 PCE prices Payroll proxy: hours-worked times hourly earnings

Employment/population ratio and unemployment rate

%, Sa 61.0 60.5 60.0 59.5 59.0 58.5 58.0 2009 2010 2011 Employment population Unemployment rate %,Sa 10.0 9.5 9.0 8.5 8.0 7.5

(weather-related) and in retail (where stores temporarily extended hours to promote holiday shopping). Against this backdrop, the message of the payroll report is simply that the trend of moderate job growth is holding. Likely unwind in January: The acceleration in job growth and private labor income growth in December are real and consistent with the forecast that real GDP last quarter accelerated to 3.5% saar growth. But the boost from temporary factors can be expected to unwind early this year, pointing to a weaker report in January, consistent with the forecast that real GDP growth is moderating this quarter. December household survey also strong: The unemployment rate fell another 0.2%-pt to 8.5% in December and is down from a 3Q11 average of 9.1% and the year-ago jobless rate of 9.4%. Other details in the household survey are also on the strong side. The number of nonfarm workers on part-time for economic reasons in December declined 406,000 and to a level 721,000 below their 3Q11 average. The labor flow data show that the number of unemployed persons that found jobs increased to 2.527 million in December, 124,000 more than the 3Q11 monthly average. Another drop in the unemployment rate: The unemployment rate has declined rapidly in the past few months and is down 0.9%-pt over the past year despite generally disap21

No change in the trend

Temporary strength in the payroll survey: Details of the payroll report indicate that much of the unusual strength in hiring reflects a boost from temporary factors. The report notes that employment by couriers and messengers rose 42,000 in December vs. a trend of only 1,000 per month; similar gains in the previous two Decembers were reversed in January as seasonal hires were laid off. Similarly, construction employment increased 17,000 vs. an average gain of only 3,000 per month over the prior three months, presumably reflecting a temporary boost from unusually mild weather. The increase in the average workweek was largely due to large 0.3 of an hour increases in construction

JPMorgan Chase Bank NA, New York Robert Mellman

Economic Research United States January 6, 2012

pointing economic growth. But the large decline mainly reflects very weak labor force growth rather than rapid growth of household employment. Household employment has grown more rapidly than payroll employment in the second half of 2011, but this mainly makes up for the undershoot in the first half. Over the past year payroll employment has increased an average 137,000 per month and household employment (adjusted for the January population break and conceptual differences) 151,000, similar growth rates that would historically be consistent with about a 0.2%-pt decline in the unemployment rate over the past year. Slightly over half (0.5%-pt) of the 0.9%-pt decline in the unemployment rate over the past year is associated with the falling labor participation rate. The rest of the decline in the jobless rate over the past year reflects unusually weak population growth as net immigration has slowed in response to soft labor markets.

ISM mfg production and the mfg diffusion index from payroll report
Sa 70 65 60 55 50 45 2010 2011 Mfg diffusion index ISM mfg: production Sa 80 70 60 50 40 30

Nominal construction spending

%ch saar, 3m/3m 45 30 15 0 -15 -30 -45 2010 2011 Total ex home renovations Private nonresidential

Short-lived strength for manufacturing, too

Manufacturing detail of the labor market report was upbeat, with employment up 23,000 and hours worked by production workers up 0.5%. These results are reinforced by detail of the December ISM manufacturing report that shows a 3.3pt increase in production to 59.9, the highest level since April. The decline in November manufacturing IP looks like an aberration that will be followed by a large increase in December. Despite the upbeat results for December, the forecast looks for a near-term slowing in manufacturing that reflects a combination of influences. Weaker export growth: Export growth is expected to slow in response to the slump in many foreign markets and recession in the Euro area. The slowdown will only be reinforced by dollar appreciation over the past eight months. Slowdown in business spending: Core capital goods shipments have declined in each of the past three months. And production of business equipment has also slowed noticeably. While both series are doubtless affected by foreign demand, it seems very likely that domestic spending on equipment is moderating markedly from its double-digit growth pace in 3Q11. Less help from inventories: Based on available 4Q11 data (still fragmentary) it appears that a positive turn in the inventory cycle added a full percentage point to growth last quarter. The boost from inventories will probably be considerably less this quarter, another important source of slowing in manufacturing production.
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Some offset from the auto industry: Not all influences are negative for manufacturing. New car and light truck production looks set to accelerate in 1Q12, according to both major industry estimates.

Construction data looking more realistic

Real business investment in structures increased at a double-digit pace in both 2Q11 and 3Q11. Although growth was helped by a surge in drilling for shale gas (oil and gas drilling is counted in structures), gains were reasonably broad-based and extended to other construction activity as well. More recent monthly data on construction put-in-place (that excludes oil and gas drilling) indicates that the surge in the middle of last year probably overstated the trend. Because construction data are volatile and subject to relatively large revisions, it is probably best to measure trends on a 3m/3m basis. And on that basis, both total nominal construction spending and private nonresidential construction have cooled considerably since midyear to a 5% to 10% growth pace. Moderate growth is a lot better than the deep declines over the past few years and may well be the best that can be expected in what is still a period of relatively tight credit for construction projects.

JPMorgan Chase Bank, New York Michael Feroli Daniel Silver James Coonan

Economic Research Global Data Watch January 6, 2012

Data releases and forecasts

Week of January 9 - 13
Tue Jan 10 7:30am NFIB Small-Business Optimism survey Index, 1986=100, sa Sep Oct Optimism Index Capex plans Hiring plans Planned price increases 88.9 20.0 4.0 14.0 90.2 21.0 3.0 14.0

report to give back some of the 15,000 drop in claims reported for the week ending December 31.
Initial jobless claims
000s, sa

Nov 92.0 24.0 7.0 15.0

Dec

700 600 500 400

The NFIB surveylike most other sentiment measureshas improved lately, though it remains weak by historical standards. Its headline index rose a cumulative 3.9pts to 92.0 between August and November. A statement already released by the NFIB indicated that small business jobs fizzled in December, but that plans to hire were improving.
NFIB Small-Business Optimism Index
Index, 1986=100, sa 110 105 100 95 90 85 80 90 95 00 05 10

300 200 2007 2008 2009 2010 2011

Continuing jobless claims (first 26 weeks of UI)

000s, sa 7000 6000 5000 4000 3000 2000 2006
Thu Jan 12 8:30am Retail sales %m/m sa Sep Total Ex autos Ex autos and gasoline Building materials Control group Ex gasoline 1.3 0.6 0.6 0.0 0.7 0.7 Oct 0.6 0.6 0.7 1.4 0.5 0.6 Nov 0.2 0.2 0.2 -0.3 0.2 0.2 Dec 0.4 0.5 0.6 0.6 0.4 0.6

2007

2008

2009

2010

Thu Jan 12 8:30am

Jobless claims 000s, sa New claims (wr.) Wkly 4-wk avg Oct 29 Nov 5 Nov 12 Nov 19 Nov 26 Dec 3 Dec 10 Dec 17 Dec 24 Dec 31 Jan 7 400 393 392 396 404 385 368 366 387 372 375 405 401 398 395 396 394 388 381 377 373 375

Continuing claims Wkly 4-wk avg 3665 3623 3704 3757 3599 3628 3567 3617 3595 3703 3674 3675 3687 3671 3672 3638 3603 3602

Insured Jobless,% 2.9 2.9 2.9 3.0 2.9 2.9 2.8 2.9 2.8

1. Control group is total less automotive dealers and building materials.

1. Payroll survey week

We forecast that initial claims for the week ending January 7 rose 3,000 to 375,000. Through the extra volatility in claims that occurs during the holiday season, claims have trended lower over the past few months, signaling some improvement in the labor market. But we look for a slight increase in the upcoming

We estimate that retail sales increased 0.4% in December, with even stronger results in sales excluding autos (+0.5%) and excluding autos and gasoline stations (+0.6%). Chain store sales increased during the month, and anecdotes relating to holiday shopping were also pretty upbeat. Sales may have also gotten a boost from the unseasonably warm weather, which we believe lifts sales in the winter months. We forecast that sales in the control group (total excluding automotive dealers and building materials) rose 0.4% in December while core sales (control group excluding gasoline) increased 0.6%. For the other retail sales categories, we believe that sales at motor vehicle and parts dealers edged down 0.1% based on the unit auto sales data that have already been reported and that sales at gasoline stations declined 0.5% based on our analysis of gasoline prices.
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JPMorgan Chase Bank, New York Michael Feroli Daniel Silver James Coonan

Economic Research United States January 6, 2012

Retail sales
%ch over 3 months, saar 20 10 0 -10 -20 -30 05 07 09 11 Total Ex. motor vehicles and parts dealers

Fri Jan 13 8:30am

International trade $ bn, samr Aug Balance(BoP basis) Services Merchandise Exports (%m/m) Imports (%m/m) -45.3 15.6 -61.0 0.1 -0.2 Sep -44.2 15.3 -59.5 1.4 0.6 Oct -43.5 15.3 -58.8 -0.8 -1.0 Nov -47.0 15.3 -62.3 0.5 2.0

Retail sales control measures

%ch over 3 months, saar 20 10 0 -10 -20 -30 05 07 09 11 Control: ex. autos and building materials Core: control ex. gasoline

We forecast that the nominal trade balance widened from -$43.5 billion to -$47.0 billion in November, with the real goods deficit expanding by $1.8 billion to -$46.0 billion. Foreign auto production data, trade reports by several Asian countries, and industry figures related to petroleum all point to an increase in US imports in November; we estimate that goods and services imports increased 2.0% during the month. Data related to US exports look more mixed, but we think that overall exports increased 0.5%. Exports have shown surprising resilience given the slowing of growth abroad (especially in Europe), and the ISM manufacturing and nonmanufacturing export order indexes indicate that exports continued to rise in November, as well as in December (using our own seasonal adjustment of the nonmanufacturing data).
Merchandise trade balance
2005$ bn -30 -40 -50 Nominal balance $ bn -20 -30 -40 -50

Thu Jan 12 10:00am

Business inventories %m/m sa, unless noted Aug Inventories Manufacturing Wholesale Retail inventories Ex autos Autos Inventory/sales ratio 0.4 0.3 0.1 0.7 0.6 1.0 1.27 Sep 0.0 0.1 0.0 -0.1 0.2 -0.9 1.27 Oct 0.8 0.9 1.6 0.0 -0.1 0.2 1.27 Nov 0.2 0.5 0.4 -0.2

-60 Real balance -70 -80 00 02 04 06 08 10

-60 -70 -80

1.27

We estimate that business inventories increased 0.2% in November. Manufacturing inventories have already been reported up 0.5% during the month. We believe that wholesale inventories rose 0.4% with a lift from petroleum prices, while retail inventories slid 0.2%. Nonauto retail inventory growth has slowed over the past few months, and we forecast a 0.1% decline in November to follow a comparable drop the prior month. Industry data point to a 0.6% drop in retail auto inventories during November.
Thu Jan 12 2:00pm Federal budget $ bn, nsa Sep Unified balance Prior year -62.8 -34.6 Oct -98.5 -140.4 Nov -137.3 -150.4 Dec -110.0 -78.1

Fri Jan 13 8:30am

Import prices %m/m nsa, unless noted Sep Import prices %oya Ex-fuel import prices %oya -0.1 12.7 0.2 5.4 Oct -0.5 10.9 -0.2 4.9 Nov 0.7 9.9 -0.2 3.8 Dec 0.3 8.7 -0.1 3.3

We forecast that import prices climbed 0.3% in December (+8.7%oya). We expect that fuel prices increased due largely to rising crude oil prices. Excluding fuels, we anticipate that the import price index dropped 0.1% in December (+3.3%oya). Food prices have been falling in the index, a trend that we expect continued in December based on our analysis of relevant spot prices. We forecast a decline in unfinished metals prices based on movements in aluminum and other spot prices, and we expect an increase in finished metals prices. Auto supply-chain disruptions due to flooding in Thailand

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JPMorgan Chase Bank, New York Michael Feroli Daniel Silver James Coonan

Economic Research Global Data Watch January 6, 2012

likely helped push auto prices higher in November. While the impact of the flooding on auto production appears to have been limited, we expect that auto prices continued to rise in the index in December. Consumer goods ex. autos prices have been rising for much of the year, driven higher by a spike in imported apparel prices. We expect that consumer goods ex. autos prices were unchanged in December as apparel prices began to unwind the effects of the price spike.
Import prices
%3m, nsa 10 5 2 0 -5 -10 -15 -20 05 07 09 11 -4 Ex. petroleum 0 Import price index %3m, nsa 4

Michigan consumer sentiment

Index, nsa 120 100 80 60 40 78 83 88 93 98 03 08

Review of past weeks data

ISM manufacturing survey (Jan 3)
-2

Sa Oct Overall index Production New orders Inventories Employment Supplier deliveries Export orders Imports Prices 50.8 50.1 52.4 46.7 53.5 51.3 50.0 49.5 41.0 Nov 52.7 56.6 56.7 48.3 51.8 49.9 52.0 49.0 45.0 Dec 53.0 53.9 59.9 57.6 47.1 55.1 49.9 53.0 54.0 47.5

Fri Jan 13 9:55am

Consumer sentiment Michigan preliminary Oct Univ. of Mich. Index (nsa) Current conditions Expectations Inflation expectations Short term Long term Home buying conditions 60.9 75.1 51.8 3.2 2.7 146.0 Nov 64.1 77.6 55.4 3.2 2.7 147.0 Dec 69.9 79.6 63.6 3.1 2.7 150.0 Jan 74.0

We forecast that the University of Michigan consumer sentiment index increased 4.1pts to 74.0 in the preliminary January report. The index increased almost 15pts between August and December, and other sentiment barometers have improved as well in recent months. With the general tone of the economic data remaining favorable, we believe the index will continue to rise in January. The daily Rasmussen Consumer Index continued to trend higher early in January. We will continue to monitor the inflation expectations reported in the University of Michigan survey. In December, the median one-year-ahead inflation expectation was 3.1% and the median five-year-ahead inflation expectation was 2.7%.

The ISM manufacturing survey increased 1.2pts in December to 53.9, to its highest level since June. The details of the survey were pretty favorable as well, and point to continued manufacturing growth ahead. The new orders index rose 0.9pt in December to 57.6 while the production index increased 3.3pts to 59.9. The employment index jumped 3.3pts to 55.1, which was the largest single-month gain since October 2009. The inventories index dipped 1.2pts to 47.1, holding below 50 for the third straight month. Rounding out the composites components, the supplier deliveries index was unchanged at 49.9 (this index is not seasonally adjusted). Away from the composites components, the customer inventories index fell 7.5pts in December to 42.5 (not seasonally adjusted). This index has been very choppy lately, but the December reading was the lowest reported since May, signaling that firms are starting to believe that inventories are getting somewhat lean. The new export orders index has shown surprising resilience given the slowdown in growth abroad, rising 1.0pt in December to 53.0 after increasing 2.0pts the prior month. The imports index jumped 5.0pts in December to 54.0, ending a run of three straight monthly declines.

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JPMorgan Chase Bank, New York Michael Feroli Daniel Silver James Coonan

Economic Research United States January 6, 2012

Construction spending (Jan 3)

%m/m sa Sep Nominal Private Residential Nonresidential Public 0.2 0.2 0.6 -0.1 0.3 1.1 1.5 1.5 1.5 0.4 Oct 0.8 2.3 3.4 1.3 -1.8 -0.2 0.7 2.3 -0.6 Nov 0.5 0.3 -0.8 1.3 0.8 1.2 1.0 2.0 0.0 1.7

increasing 3.7% in November (revised from 3.8%) and shipments of durables declining 0.3% (revised from -0.4%). The updated data on core capital goods are still very weak. Core capital goods shipmentssource data in estimating GDP growthdeclined 0.8% in November (revised from -1.0%) and have dropped 8.7% saar over the three months through November. Core capital goods orders declined 1.2% in November (unrevised) and have fallen 2.9% saar over the three months through November. The data on inventories in the factory goods report looked a little stronger than expected, adding some upside risk to the inventory component of our GDP forecast. Inventories of nondurables increased 0.3% in November while inventories of durables rose 0.6% (unrevised). Motor vehicle sales (Jan 4)
Mn, saar Oct Light trucks and autos Imports Domestics Autos Light trucks 13.2 2.9 10.3 4.4 5.8 2.8 10.4 4.5 Nov 13.6 3.1 2.9 10.5 10.7 4.6 4.7 6.0 Dec 13.5 3.0 10.5 4.5 6.0

Nominal construction spending increased 1.2% in November. The spending data were also revised down for October (from 0.8% to -0.2%) and up for September (from 0.2% to 1.1%), with most of these revisions in the private nonresidential spending component. The recent data look consistent with a modest pickup in single-family residential construction spending during 4Q and spending on multifamily units about unchanged during the quarter (after a big jump in 3Q). Growth in private nonresidential spending has flattened out recently after increasing for most of the year, and public construction spending continued to move very gradually higher. Private residential construction spending increased 2.0% in November. This was boosted by an increase in home improvements (+2.6%), but the improvements series is not used by the BEA in estimating GDP growth because it is viewed as unreliable. Away from home improvements, spending on new single-family construction increased 1.5% in November. While spending on single-family construction remains extremely depressed, it has now increased for six straight months and looks consistent with other indicators signaling some improvement in the housing market. Spending on multifamily construction increased 1.3% in November after declining each of the prior two months. Private nonresidential spending was basically unchanged in November, and related growth has cooled lately from a three-month run rate of 40% saar back in June to only 3.5% saar in November. Public construction spending rose 1.7% in November, with gains at both the federal and state and local levels. Public spending has increased a modest 4.6% saar over the past six months, with increases at the state and local level outweighing declines in federal spending. Factory goods report (Jan 4)
%m/m sa, unless noted Sep New orders Shipments Inventories Inventory/sales ratio -0.1 0.3 0.1 1.33 Oct -0.4 0.6 0.9 1.33 -0.2 0.5 Nov 1.7 -0.2 0.3 1.34 1.8 0.0 0.5

ISM nonmanufacturing survey (Jan 5)

Sa Oct Nonmfg. index (NMI) Business activity New orders Employment Prices 52.9 53.8 52.4 53.3 57.1 Nov 52.0 56.2 53.0 48.9 62.5 Dec 54.0 52.6 56.2 53.2 49.4 61.2

The ISM nonmanufacturing index edged up 0.6pt in December to 52.6, ending a run of three straight monthly declines. Even with this latest modest improvement, this survey seems to be lagging behind most other economic indicators that have signaled a recent acceleration in economic activity; on average, the ISM nonmanufacturing index was 0.5pt weaker in 4Q than in 3Q. Most of the important details of the index were little changed in December, with no change in the business activity index (at 56.2) and modest improvement in the indexes on new orders (from 53.0 to 53.2), employment (48.9 to 49.4), and supplier deliveries (50.0 to 51.5, not seasonally adjusted). Away from the composites components, the indexes on the change in inventories as well as inventory sentiment declined in December (both not seasonally adjusted as reported and using our own seasonal adjustment), signaling that firms reduced inventories during the month and fewer firms thought inventories were too high. The prices index has fluctuated around 60 the past few months after coming in close to 70 earlier in 2011. The series on trade are not seasonally adjusted and can be choppy, but the export orders and imports indexes both increased in 4Q relative to 3Q, on average.

Factory orders increased 1.8% in November while related shipments were flat. Increases in orders and shipments of petroleum and coal products led both orders and shipments of nondurable goods up 0.3% in the month, with these increases likely due in part to higher prices. The data on durable goods were revised very slightly relative to what was reported in the advance report, with orders for durable goods

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JPMorgan Chase Bank, New York Michael Feroli Daniel Silver James Coonan

Economic Research Global Data Watch January 6, 2012

Labor market report (Jan 6)

Sa Oct Payroll employment (ch, m/m, 000s) Private payrolls Goods-producing Construction Manufacturing Service-providing Private service-providing Wholesale trade Retail trade Professional services Temporary help Education/health Leisure and hospitality Government Average weekly hours Index, hrs worked (%m/m) Hourly earnings (%m/m) (%oya) Unemployment rate (%) 100 117 -4 -15 6 104 121 11 13 39 16 37 24 -17 34.3 0.1 0.3 1.9 9.0 112 134 6 -10 10 106 128 12 16 30 5 27 -22 34.4 0.4 Nov 120 140 -6 -12 2 126 146 -2 50 33 22 27 22 -20 34.3 0.1 -0.1 1.8 8.6 100 120 Dec 185 200 15 5 5 170 185 200 212 48 17 23 152 164 12 28 12 -7 29 21 -12 34.4 0.5 0.2 2.1 8.5

mid-one-handles. Elsewhere, manufacturing and retail trade each had nice months, up 23,000 and 28,000, respectively. One of the more disappointing performances was in the white-collar-heavy professional and business services category, where jobs increased a modest 12,000. The average workweek increased a tenth to 34.4 hours, reversing Novembers decline. A similar move was seen in the more reliably-measured series for production and non-supervisory workers. In both measures the increase in the retail trade workweek stood out. Average hourly earnings rose 0.2%, though the measure for production and non-supervisory workers was flat. In both measures the trend in wage inflation remains quite tepid, at or under 2% per annum. In spite of the soft wage inflation numbers, total private pay increased at a relatively decent 4.6% annual rate last quarter, thanks to a 3.0% increase in hours worked. As mentioned above, news out of the household survey was dominated by the drop in the unemployment rate from 8.65% in November to 8.51% last month. With the revision to the seasonal factors, the decline in the unemployment rate from 9.4% last year now looks smoother, with the rate dropping in each of the last five months. A less upbeat message came from the employment-to-population ratio, which was unchanged at 58.5% and is up only 0.3%-pt from its cycle low. The participation rate was also unchanged at 64.0%. While some of the 2%-pt decline in the participation rate since the recession began is due to the long-run aging of the workforce, there are definitely non-demographic behavioral elements at work as well, as the prime-age adult (25-54) participation rate is down about 1.5%-pts. A decline in the number of those working part-time because they could not find full-time employment helped to pull down the broad U-6 measure of unemployment from 15.6% to 15.2%. The striking divergence between male and female labor market outcomes in the recession and slow recovery has now essentially been reversed; at one point early in the recession prime-age adult male unemployment rates were 2.5%-pts higher than female unemployment rates in the same age group, now they are slightly less than female unemployment rates. What now appears more striking than that gap is how little improvement there has been in prime-age female unemployment rates, which at 7.6% is essentially unchanged over the past two years.

1 106 126 -1 39 19 11 33 30

8.9

-0.2 0.0 1.9 8.7

-15 34.3 0.2 0.1 2.0 8.7

The December employment report was generally solid all around, and consistent with a view that GDP growth popped to around a 3.5% rate last quarter. Job growth quickened last month to 200,000albeit with some temporary supports that are likely to fade in Januaryand the average workweek ticked up. Job growth in the prior month was revised down by 20,000. More striking is the continued and now steady decline in the unemployment rate, which fell another tenth to 8.5%. Over the past two years, the unemployment rate has fallen 1.5%-pts, in a period in which GDP growth averaged only about 2.5%. Taken at face value this would suggest the US economys potential growth rate has tanked to around 1%near European and Japanese levels. Arithmetically, the combination of declining unemployment with middling growth can be explained by slowing population growth and a declining labor force participation rate. The persistence of very low levels of labor force participation raises some concern that various institutional and behavioral factors may be inflicting structural damage on labor markets. Details of the establishment survey were in line with the trends seen over recent months. Private payrolls increased 212,000 and government employment slid 12,000, mostly at the local level. Private employment was helped by two special factors. First, last month was the warmest winter month in five years, which likely supported the 17,000 rise in construction employment, and may have helped other sectors as well. Second, employment of couriers and messengers spiked 42,000, about as it has in the past two or three Decembers. The growth of internet Christmas shopping has led to higher employment at parcel delivery companies in the holiday season, and the trend is too recent for the seasonal factors to have reflected it yet. Over the past few years this spike in couriers and messengers has completely unwound in January, which is one reason to think that January employment growth may dip back down to somewhere near the

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JPMorgan Chase Bank NA, New York Daniel Silver

Economic Research Global Data Watch January 6, 2012

Focus: solid household employment

The results of the December household survey contained many favorable details related to the labor market, though most of its components remain quite weak by historical standards. Some of the improvement reported in December may be overstated because of some special seasonal influences (which are more clearly evident in the establishment survey data), but it still looks like the trends in the household survey have been improving over the past few months. The unemployment rate declined 0.2%-pt in December to 8.5% (figures for the past five years were also revised slightly due to reestimated seasonal factors). The unemployment rate has declined 0.6%-pt since August and 1.5%-pts since the peak reached in October 2009, but it remains very elevated compared to historical norms. The U-6 ratea broader measure of unemploymenthas also trended lower lately, falling 0.4%-pt in December to 15.2%. The share of the labor force working full time has been trending higher since early 2010, and full-time employment has increased 4.7% saar over the three months through December. After a worrisome move up a few months ago, the share of the labor force working part time for economic reasons has dropped lately, and reached a new low for the recovery (5.3%) in December. The number of unemployed people has fallen more than 10% saar over the six months through December, and separate labor flow data (not shown) indicate that this decline is not directly due to unemployed people dropping out of the labor force. The numbers of long-term and short-term unemployed have fallen in recent months. The employment-population ratio sends a less encouraging signal about the labor market. It was unchanged in December at a depressed 58.5%, which is up only 0.2%pt relative to December 2010. The participation rate also was unchanged in December, and signals weakness in the labor market. It held at a cycle low of 64.0% during the month. While some of the drop in participation over the past few years may be due to the aging of the workforce, the participation rate for prime-age workers (ages 25-54) remained only 0.2%-pt above its cycle low in December (not shown).

Unemployment rates
%, sa, both scales 11 10 9 8 7 6 5 4 3 95 97 Including part-time and discouraged workers (U-6) 18 16 14 Official 12 10 8 6 99 01 03 05 07 09 11

Full-time and part-time employment: share of labor force

%, sa 82 80 78 76 74 72 00 02 04 06 08 10 12 Full-time Part-time for economic reasons %, sa 7 6 5 4 3 2

The number of unemployed, by duration of unemployment

Mn, sa, both scales 11 10 9 8 7 6 5 05 07 09 11 unemployed 26 weeks or less unemployed 27 weeks or more 7 6 5 4 3 2 1

Labor force participation rate and employment-population ratio

%, sa 68 Employment-population ratio 67 66 65 64 00 02 04 06 08 10 12 Participation rate 64 62 60 58 %, sa 66

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