U.S. Jobs Surveys Tell Same Story, Despite Differences

Last week's U.S. employment surveys for December support Fitch's view that the healing of the labor market is not proceeding quickly enough to drive a significant pick-up in U.S. economic growth. Despite a decline in the headline unemployment rate to 6.7% in December, labor productivity and participation rates have stayed weak since the recession. We remain concerned that high levels of unemployment and under-employment will continue to dampen consumer spending and delay the start of a more robust economic recovery.

Differences between the monthly employment reports released by ADP and the Bureau of Labor Statistics (BLS), evident in the December payrolls data, will likely be smoothed over the next quarter as monthly numbers are adjusted. While significantly different, we believe both surveys have shown ongoing, accelerating improvements in job creation over recent months. Unfortunately, the reports still indicate that U.S. employment levels are not rising fast enough to offset job losses suffered during the last recession.

The U.S. economy needs to generate between 185,000 and 200,000 jobs monthly to significantly reduce unemployment. The higher December payrolls number from ADP reflects stronger jobs growth at the end of 2013, but appears to be a catch up relative to the BLS numbers over the last 24 months. BLS reports reflect an average increase of 187,000 jobs per month over that period, while ADP averaged 170,000. Typically, the net difference between the reports is below 0.06% of total jobs each month.

For December, ADP reported net growth of 238,000 jobs while BLS reported only 74,000. Last February 2013, by contrast, BLS reported a significantly higher monthly jobs number than ADP. Of greater concern is that the December increase is not statistically significant. So if the BLS number is not revised, it is likely that there was little or no discernible employment growth in the fourth quarter.

This repeats recent seasonality patterns in the U.S. economy where the greatest growth is experienced in the first part of the year and tails off each year. BLS jobs growth was highest in the first and second quarters of 2013, adding an estimated 637,000 and 569,000 jobs, respectively. ADP's highest quarter is the fourth quarter at 638,000 and the second highest is the first at 529,000. To further cloud the data, GDP growth for the third quarter has been attributed to a large inventory increase, casting doubt on the fundamental strength of the economy in the second half of last year.

Fitch projects a modest increase in U.S. GDP growth in 2014 and 2015. The outlook for U.S. corporate credit is stable. However, little positive momentum is expected in the near term.

We believe differences in the results of the ADP and BLS reports could continue over the next few months. The BLS is modifying its use of data and surveys (beginning with the February report), in addition to its annual benchmark adjustment for job growth rates by sector.

Additional information is available on www.fitchratings.com.

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