December Job Growth Should Suffer Slimming Trend

Individual forecasters offer varied predictions based on their outlooks for construction and services.
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Economists on average expect the December

employment report

, due out at 8:30 a.m. EST tomorrow, to reveal a 212,000 gain in nonfarm payrolls. A gain of that size would continue the very gradual slowdown in job growth that's been underway since the fall of 1997. In November, 267,000 new jobs were created, and the average for the last 12 months slipped to 236,000 from 245,000.

But depending on how well the construction sector held up, and on the extent to which persistent weakness in the manufacturing sector spilled over into the service sector in December, individual forecasters are looking for gains as small as 175,000 and 300,000.

The manufacturing sector, they agree, will probably continue to contract. As Asian demand for U.S. products has collapsed, manufacturing payrolls have shrunk during eight of the last 12 months, and there's no reason to hope for anything different this time around, forecasters of all stripes say.

By contrast, the outlooks for construction and services are refreshingly varied.

Construction is by far the smaller sector, accounting for only about 5% of the workforce, while the services sector accounts for 80%. But some forecasters expect it to experience the sharpest growth in December, as it did in November, when construction payrolls grew by 47,000, or 0.8%, to 6.1 million. Total nonfarm payrolls expanded by 267,000, or 0.2%, to 126.8 million.

"It's construction payrolls that'll boost this report," said Richard Yamarone, senior economist at

Argus Research

, who is forecasting a total gain of 300,000 jobs. "The construction economy is on fire." Yesterday's news that

new home sales rose to an all-time high seasonally adjusted annual pace of 956,000 in November is the latest evidence of that, he said.

The

Labor Department's

seasonal adjustment factors for December assume that cold weather resulted in heavy construction layoffs. But the second week of December -- the week when the department gathers data for the jobs report -- was unseasonably warm. If the weather protected construction jobs, the report should spot a sizable gain in construction payrolls, some forecasters say.

Barclays Capital

senior economist Henry Willmore, who's forecasting 220,000 new jobs in December, thinks they'll all come from the service sector. In the goods sector, construction payrolls should grow and manufacturing payrolls should shrink by roughly the same amount -- about 45,000, he says.

Of course, not everyone agrees that construction payrolls could surge. Bill Sullivan, chief money-market economist at

Morgan Stanley Dean Witter

, thinks that warm weather in November inflated construction payrolls and that December will bring a return to normal levels. "The counterargument is that November borrowed from December in some degree," he said.

Sullivan, however, is forecasting total gains of just 175,000. Construction payrolls weren't the only ones that were inflated in November, he reasons. Retail payrolls were too, as retailers boosted hiring of part-time workers in anticipation of a strong holiday season. Sullivan's prediction for December is "more or less a return to the type of gains we saw earlier in the year," he says, noting that the economy added just 172,000 jobs in September, and 145,000 in October.

His expectation of a continuing slowdown in job growth is based on the forces he thinks will slow global economic growth this year: chiefly, recognition of overcapacity in the global economy. That's what's behind the drumbeat of layoff announcements that began in November. "Some degree of caution has been introduced into hiring plans for '99," he said. "We're not posed for a serious pullback just yet, but moderation is what one should expect."

Sullivan thinks payrolls are likelier to fall short of his forecast than to exceed it, if construction employment shrinks by more than he's predicting.

Willmore agrees that service hiring is likely to slow as the weakness that's been apparent in manufacturing for months now begins to have "multiplier effects." As shipments drop, he explained, manufacturers will require less from their accountants and lawyers. "They have a lot of outsourcing contracts with service firms; they'll cut back on those," he said.

Bullish on construction, Willmore thinks a larger-than-expected gain in that sector could force the total jobs number higher than his forecast. At the same time, he thinks anecdotal accounts of bad service from retailers during the holidays may mean that retailers didn't hire as many people as they should have in December.

And then there's Richard Yamarone, who concedes he'll be either a hero or a goat on Friday morning. He thinks even more service-sector jobs were created in December than November, particularly in the retail, personnel-services, legal, engineering and auto-repair sectors. With housing booming, he thinks the furniture and home-furnishings stores division of retail will be particularly strong.

"You don't have to be an economist to understand this," he said. "Just walk down the street and look at the

help-wanted signs in the windows."