Payrolls Decline Means Lower Rates Likely

by: Tim Iacono February 04, 2008    

Tim Iacono

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Nonfarm payrolls posted a decline of 17,000 in December, the first monthly job loss in over four years, and the Labor Department's annual revision to the payroll data, going as far back as January of 2007, resulted in an overall decline of 376,000.

For the month of January, employment in construction and manufacturing declined by 27,000 and 28,000, respectively, and, as usual, strong gains were seen in education and health services where 47,000 new jobs were added.

Government employment declined by 18,000, driven by a drop of 26,000 in education positions at the state level - this was an unusually large decline that seems to occur about every other year in January. Overall, the government category has been a consistent source of job growth, averaging almost 20,000 new positions per month during 2007.

The unemployment rate, which comes from a different survey, dipped slightly from 5.0 percent in December to 4.9 percent in January. Average hourly earnings increased 0.2 percent to $17.75, an increase of just 3.7 percent on a year-over-year basis and below the current government-reported annual inflation rate of 4.1 percent.

In the nonfarm payrolls report, December job growth was revised up by 64,000, however, this gain was nearly wiped out by the 55,000 downward adjustment to the November data.

This report also contained details of the annual revisions for the prior year's data. According to the Labor Department report:

In accordance with annual practice, the establishment survey data have been revised to reflect comprehensive universe counts of payroll jobs, or benchmarks. These counts are derived principally from unemployment insurance tax records for March 2007.
...
Table B presents revised total nonfarm employment data on a seasonally adjusted basis for January through December 2007. The revised data for April 2007 forward incorporate the effect of applying the rate of change measured by the sample to the new benchmark level, as well as updated net business birth/death model adjustments and new seasonal adjustment factors. The November and December 2007 revisions also reflect the routine incorporation of additional sample receipts into the November final and December second preliminary estimates. The total nonfarm employment level for March 2007 was revised downward by 293,000 (284,000 on a seasonally adjusted basis). The previously published level for December 2007 was revised downward by 256,000 (376,000 on a seasonally adjusted basis).

The labor market appears to deteriorating rather quickly now and the revision to last year's data confirms what many had suspected for some time now - that the Labor Department's birth/death model was masking job losses in a number of important areas affected by plunging housing and mortgage markets.

Since employment is one of the two mandates at the Federal Reserve (the other being price stability) look for even lower interest rates through the rest of the year if the current labor market trends continue.

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