Accounting agency: December best jobs month in a decade

An unofficial report from Automatic Data Processing says about 300,000 private sector jobs were added last month

Topics: Unemployment, Economics,

Companies added nearly 300,000 jobs in December, according to an unofficial count by a private payroll firm — more than in any month in the past decade. The news raised hopes that the government’s official report Friday on last month’s job creation could be a blockbuster.

While there were reasons to doubt the numbers, the report from Automatic Data Processing, and another showing strength in the nation’s service industries, reversed what was shaping up to be an ugly day on Wall Street. It also generated optimism that the unemployment rate might finally start to fall.

Some economists expressed skepticism about ADP’s monthly figures because they often don’t track the official government employment data. Others said that the report’s estimate of job gains was so high that it at least reinforced evidence that hiring is picking up as employers gain more confidence.

Diane Swonk, chief economist at Mesirow Financial, says the ADP numbers suggest the Bureau of Labor Statistics could report Friday that the economy created more than 300,000 jobs last month. Economists have been predicting fewer than half as many — 145,000.

It takes about 125,000 new jobs a month just to keep up with population growth and hold the unemployment rate — now 9.8 percent — stable. It takes up to 300,000 new jobs a month to reduce the unemployment rate significantly, economists say.

The report is just the latest sign that the job market might be turning around at last. The Labor Department said last week that the number of people applying for unemployment benefits has fallen to its lowest point in two and a half years. The staffing firm Challenger, Gray & Christmas said Wednesday that layoffs fell last month to the lowest level since June 2000.

And big companies, which have been slow to commit to hiring full-time workers, are starting to do so again. Discount retailer Dollar General this week said it plans to hire more than 6,000 workers in 2011. Union Pacific, the nation’s largest railroad, plans to replace 4,000 workers — about 10 percent of its total staff — who are set to retire in 2011. It’s also recalling some employees who were furloughed during the recession.

Economists had expected the ADP numbers, the first major snapshot of hiring in December, to show that private employers added 100,000 jobs last month. The actual figure, 297,000, was “a bolt from the blue,” says Ian Shepherdson, chief U.S. economist at High Frequency Economics.



In part because of that powerful number, the Dow Jones industrial average edged higher for the third day in a row. The Dow closed up nearly 32 points, or about 0.3 percent, and broader stock averages posted larger gains. Before the ADP issued its report, futures markets had suggested the Dow was headed for a steep loss.

Yet many economists are unconvinced by the ADP report. Zach Pandl of Nomura Securities says the report has a “spotty track record” in aiming to predict what the official government numbers will show.

For example, ADP’s figures suggest that private-sector employers added an average of about 35,000 jobs a month last year through November. By contrast, data from the Bureau of Labor Statistics show an average of several times that — about 100,000 new net jobs. Over the past decade, the difference between the two sets of numbers has been much narrower: about 4,500 jobs a month.

Joel Prakken, chairman of the research firm Macroeconomic Advisers, which compiles ADP’s numbers, says the jobs surge in December is “moderately suspicious.” Adjusting the figures to weed out seasonal factors is difficult during the holidays, Prakken acknowledged.

The disparity between ADP’s and the government’s figures reflects the way each gathers employment figures.

The Bureau of Labor Statistics draws its data from a survey of employers in government and the private sector. On Friday, the BLS’ employment data for December will reflect the numbers of jobs reported at about 240,000 private and 34,000 government work sites.

ADP conducts its survey differently: Its computers count the number of workers on the payrolls of more than 340,000 of ADP’s clients. Macroeconomic Advisers then adjusts that count to try to reflect the entire U.S. private-sector work force.

Pandl of Nomura Securities says the ADP numbers are especially questionable in December. The reason is that some companies keep employees on their payroll all year for tax purposes, even after they’ve left and are no longer being paid — and purge them once the year ends.

“The ADP report has historically had problems seasonally adjusting these December figures,” Pandl says.

Prakken acknowledges that ADP’s numbers aren’t flawless. But he noted that the Labor Department will revise its own job estimates in February, which could narrow the gap.

Together, the two reports point to a consistent pattern, Prakken says.

“They both have good information in them, and it would be silly to ignore them,” he says. “Even with caution, I think the underlying tone of the ADP data is strong and gathering strength. The economy is building momentum. The consumer seems to be reawakening. Housing is no longer falling. Businesses are reporting profits. There is a lot of other evidence that we’re starting to emerge” from a period of weak economic and job growth.

Economist Jonathan Basile at Credit Suisse called the ADP report a “game changer.”

“The step-up in hiring according to ADP — especially if it’s reflected in the payroll report on Friday — suggests that firms appear to be more confident in the outlook and more comfortable to put the cash they’ve been hoarding to work. Put another way, that’s when visibility gains tractions in business planning and the job market shifts into another gear.”

——

AP Transportation Writer Samantha Bomkamp and AP Retail Writer Mae Anderson in New York contributed to this report.

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