I was one of the few analysts calling for a potential rebound in non-farm payrolls in the month of December (Non-Farm Payrolls Preview: Could We See a Rebound) and that was exactly what we saw this morning. 524k jobs were lost in the US economy, which is modestly better than the -586k revised loss for November. In the past 5 decades, we have seen a rebound every single time job losses topped 500k, and this time it was no different. The employment component of service sector ISM which rebounded last month has once again proved to be one of the most reliable leading indicators for NFP. We have a service based economy and the rebound in the employment component of ISM was a strong signal that we could see a rebound in payrolls. However, the rebound is far more modest than what we have seen in the past and the unemployment rate jumped from 6.8 to 7.2 percent, is the highest level in close to 15 years.
Despite the better than expected number, if you need proof that the US economy is in bad shape, the latest non-farm payrolls report certainly provides it. In the course of 2 months, more than a million Americans lost their jobs, totaling 2.485 million jobs lost in 2008.
We will probably not see the new assault on the US dollar that traders were expecting since NFPs matched expectation, but in the long run the data is nothing to cheer about. An unemployment rate of 7 percent was the big number that everyone was focusing on now that the unemployment rate has exceeded that level, it will force more creative measures of stimulus from the Federal Reserve.
Rebound is a Precursor to More Losses
We have just endured one of the worst strings of job losses that this generation has ever seen and unfortunately the pain will continue. Companies are tightening their belts and are in survival mode. Alcoa and Intel have already announced layoffs. Fourth quarter and first quarter earnings will be very weak. To shore up their stock prices and plan for a recovery, many companies may be forced to announce more layoffs.
The US is in recession and in previous recessions, job cuts have lasted for at least 15 months. So far, we have only seen 12 consecutive months of job losses which means that non-farm payrolls will not turn positive until the second half of the year.
There was nothing good report as the pace of job losses in the manufacturing sector accelerated while average weekly hours and earnings declined.