Some Thoughts on US Jobs Report

The November US jobs report is slated for release tomorrow and there does not seem to be any reason not to look for a relatively robust report. The usual inputs have been uniformly constructive. This includes, the ADP report, the weekly initial jobless claims (especially the week in which the survey was conducted) and the ISM reports.

More generally, the string of top tier and most of the secondary data for the past several weeks has been not only better than expected but also suggestive of some modest acceleration of the US economy. The Beige Book yesterday indicated that 10 of 12 regions are seeing improvement.

There have been two pieces of data over the past 24 hours that seem to have been lost in the shuffle that are very suggestive.

First, the auto sales reported yesterday was a good as one could have imagined. For the second month in a row about 12.25 mln unit saar pace were sold. This has not been done since Sept-Oct 2008. Moreover, the pace in the first two months of Q4 is running more than 30% above the pace from Q3. Retail more than fleets accounted for the overwhelming majority. Two theories have been offered to explain the recovery in auto sales. The first is the wealth effect of the rising stock market. The second is the impact of improving job market and stable gasoline prices.

Second, and the auto sales would be a subset, is that the American consumer is feeling more confident and is shopping again. ICSC reports that US chain store sales rose 5.8% year-over-year last month, the best since March. October's comparable figure was 1.6%. This points to another decent retail sales report (14 Dec). In Q3 retail sales rose an average month pace of 0.7%. In Q4 this it is likely to be half again as good (~1.0% or so on average). Retail sales are roughly 40% of personal consumption expenditures.

Returning to US jobs, the ADP estimate has been below the initial private sector nonfarm payrolls by about 90k. If one adds it to the ADP 93k estimate, to get a ball park guesstimate, it is 183k, which would be the strongest since April. Moreover, the trend is clear. In Oct the 3-month average stood at 139k, the highest since the March/April job surge (a total of almost 400k in those two months).

There is some risk that the work week and hourly earnings, important elements of the report, may not show the same improvement as the job creation, but on balance a strong US jobs report is likely.