December Payroll Forecast

(Abridged version.  Complete report & data available on request)

Expect A Strong December

Key Takeaway: December Payrolls will be boosted by core job growth and lower layoffs

  • December showed broad-based strength
  • January could be ugly: accelerated layoffs, seasonal jobs eliminated
  • Future Core Job growth at risk from challenging macro environment

  

SouthBay December Indicators

SouthBay Index: Strong December

December's growth was noteworthy:

(a) Trend reversal: for 5 months the trend was diminishing volatility.  Both SouthBay and NFP private payrolls moved in a narrow range

(b) Strong: December's growth was the highest all year.                

 

A similar spike was last seen earlier this year when payroll growth peaked.



(Note: For an explanation of Updated NFP data, please see the report An NFP Error Hides the Real Payroll Trend)


Does a December Surge Make Sense?

Two factors combine to create payroll growth: actual jobs added (core job growth) and jobs not eliminated (lower-than-expected layoffs). 

  • Jobs Added: November's payroll growth came from strong Trade & Transportation growth.  The unadjusted payroll was ~100K higher than last year and the 3rd highest November in 21 years. 

  • Jobs Not Eliminated: If the BLS expects 300K jobs to be eliminated but only 250K get cut, it's recorded as a 50K payroll increase.


Core Jobs: Sometimes payroll growth really is jobs growth

For several months SouthBay has been pointing to the growing importance of eCommerce and the structural shift it is driving in consumer spending and even payrolls. 

Amazon's operations depend on labor intensive back-end support: logistics(shipping and warehousing), IT, and Customer Service.  At the same time, traditional retailers must staff their stores.  So while an Amazon may eat away at Sears/K-mart sales, the holiday payroll gets hit less.

November Payrolls showed the complementary nature of the payroll demand.  Brick-and-mortar Retail jobs paced last year's while eCommerce related jobs surged (warehousing & shipping jobs a la Fedex/UPS).


Fewer layoffs: Sometimes payroll growth really ISN'T jobs growth

Weather was a big factor for December: mild and dry conditions kept outdoor activities going (more construction, farming, shopping, recreation).

Whether due to warm weather or because of lean staffing, layoffs are lower than normal this time of year.  It's showing up in Weekly Jobless Claims.  This year layoffs are exceptionally low: the second lowest in 12 years.     

 

Through the miracle of seasonal adjustments, fewer-than-expected layoffs are counted as payroll adds.

 

[SouthBay Index Data removed - available to clients only.]

 

From last month's report:

  • Slower growth for all sectors except for Trade & Transportation. (note: This sector led all others and drove 41% of November's  payroll growth)

  • Professional services is also steady.  A key driver is office workers and temp workers.  (note: Temp workers drove 15% of November payroll growth)

December Notes:

On a seasonally adjusted basis, the following job categories showed notable trends:

  • Biggest growth areas: Warm weather & Consumer related (Hospitality, Recreation, Construction, Retail & Transportation)

  • Manufacturing continued to show strength

  • Professional Services was mixed.  Customer facing jobs showed strength (Sales, Customer Service) while operations & overhead was soft (IT, Legal, management, Legal, Marketing, HR, etc).  As if to reflect hesitancy to hire full time workers, Temp workers showed strength

  • Education & Healthcare steady

  • Government hiring showed signs of strength.  Tax revenues are stabilizing, costs have been contained and bond markets receptive.


From the standpoint of employment growth:

Employment Growth by Metro Area Y/Y

    • Manufacturing & Domestic Shipping Strength

Midwest & Auto Manufacturing (Detroit, Cleveland, Columbus, Indianapolis, Nashville,

Shipping (Memphis, Indianapolis, Kansas City, Louisville).  Orange County fell off the list of Lowest Growth areas, indicating the China import slowdown may be ending Minneapolis)

  • Healthcare centers growing (Omaha, Charlotte)

Small town USA growing much faster than major metro areas


From the standpoint of where the jobs are:

Job Availability by Metro Area

 

Naturally, large metro areas saw the most job availability.  On a per capita basis, however, small metro areas led the way for job opportunities relative to their population. 

In addition, several cities were on the list of most jobs in total and per capita: Las Vegas, Minneapolis, Pittsburgh, Orlando, & Tampa Bay

Commercial Real Estate is likely to strengthen in these areas.