Today's Employment Report Stands Alone

The job situation has improved. Really. I say this with the preponderance of data in mind, certainly not with the December employment report. In the aftermath of today's data, I won't now be suddenly compelled to think that the job market has weakened, and nor will many others. Most data points simply don't support this conclusion.

For example, should the persistent declines in jobless claims be dismissed? Those data are based on actual data from U.S. states and contain very little interpolated information. The report is an extremely close approximation of actual conditions, with little of the distortions that often arise in sample-based surveys such as the monthly payroll survey. Also, what about the Institute for Supply Management's near-15-year high in its employment component? Do we dismiss the credibility of this time-tested 50-year-old survey?

Investors who were counting on a strong December employment report shouldn't lose heart. As I mentioned in my preview Thursday on the job situation:

The collective weight of evidence on current labor-market trends suggests that the chance of a blowout employment report -- one that unmistakably indicates a real turn -- has increased substantially. Such a report seems likely within the next three months, and we could even see it in the December employment report due Friday. A gain of nearly 300,000 is quite possible. [Italics added for emphasis.]

In my only other reference to the December report, I indicated:

Working against the possibility of a strong December report is the chance that seasonal hiring might have been lower than normal. If this is the case, it will also mean that seasonal layoffs will be fewer than normal, thereby boosting the January data, which are released in February. This appears to have been the case a year ago, when payrolls fell 211,000 in December but rose 158,000 in January. If we don't see a blowout report tomorrow, the odds will be even higher come February. [Italics added for emphasis.]

Debate Over Divergence

There's no way to spin the December employment report except to say that it will play better on Main Street than on Wall Street. To many Americans, the declining jobless rate, which fell to 5.7% from 5.9% in November, will reinforce the view that the labor market is improving. After all, it has fallen sharply from its postrecession peak of 6.3% in June.

On Wall Street, the scrutiny will be more intense, particularly on the debate over the divergence between the household survey, which is the source for the unemployment rate, and the establishment survey, which is the source for monthly payroll changes. The jobless rate has been falling because of a sharp rise in household employment (up 2.2 million workers over the past year), yet there's been almost no increase in payroll employment. What gives?

The divergence probably relates to a surge in small-business hiring and self-employment relative to hiring trends at large companies. The disparity has been particularly acute in recent times because of the unusual nature of the current business cycle. Specifically, it can be persuasively argued that the bursting of the financial bubble resulted in a massive reallocation of capital. In particular, money that was previously allocated to dot-coms, telecom and the like is now being channeled toward new and emerging industries such as Wi-Fi, digital cameras and equipment, LCD televisions, among many others.

---

Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. He appreciates your feedback and invites you to send it to Tony Crescenzi.

TheStreet.com has a revenue-sharing relationship with Amazon.com under which it receives a portion of the revenue from Amazon purchases by customers directed there from TheStreet.com.