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Human Resources Outsourcing (HRO – PEO – ASO – Payroll – Agency)

BofA Merrill Lynch Global Research – A US Economics Report – Friday, 07 December 2012

Payrolls increased 146,000 and the unemployment rate fell

Nonfarm payrolls increased 146,000 in November while the unemployment rate fell to 7.7%. To the surprise of many, including us, the BLS did not change its methodology to capture the devastation from Hurricane Sandy. Looking past Sandy, job growth has followed its recent trend – over the past three months, the economy has added an average of 153,000 private sector jobs, which is just more than needed to keep up with population growth. Although businesses have cut back investment in capital in the face of the cliff, they have yet to do so with labor. This shows some stability heading into year-end.

 Payrolls keep up with trend: Nonfarm payrolls increased 146,000 in November, but there were net negative revisions of 49,000. The revision was concentrated in state and local governments, which have experienced big swings in payrolls over the prior few months. The private sector, which is a better gauge of the underlying trend in the labor market, did not see much of a revision. Although Hurricane Sandy left significant devastation in its path, the BLS found that survey response rates in the affected states were within “normal ranges” and hence did not adjust their methodology to better capture job cuts from the businesses hit by Sandy (as they did with Hurricane Katrina).

 Unemployment rate falls: The unemployment rate declined to 7.7% (7.746%) from 7.9%, a positive surprise relative to consensus. However, the decline in the unemployment rate was due to a 122K drop in household employment and a 350K decline in the labor force. This followed two months of solid gains, leaving the three-month average growth in household employment at 387K and labor force at 215K.

 Sandy and unemployment: We suspect that the household survey showed more of an impact from Sandy than the establishment survey. This is partly because the survey week was moved up to the week including Nov 5 versus the standard survey week with the 12th of the month. This means the survey was conducted shortly after Sandy made landfall. Supporting this view, the number of workers reporting they could not go to work because of poor weather conditions increased to 369K versus 60K last November. If there was a downward bias from Sandy in November, it will likely reverse in December, suggesting some upside risk to the data.




Read the full report here.