Employment situation deteriorating at a slower pace
Nonfarm payroll employment declined 124,000 in December, just about in line with expectations but less than the past several months. In fact, the drop was the smallest since August. The three-month moving average for payroll changes looks like it hit bottom in November. But not surprisingly, manufacturing employment continued its downward spiral posting a decline of 133,000 in December. Among goods-producing manufacturers, mining was down a tad but it was offset by an equal rise in construction. The service-producing sector managed to post a rise but this was primarily due to a spurt in government employment, although business & health service payrolls also rose.

The civilian unemployment rate edged up 0.2 percentage points to 5.8 percent in December. The labor force was roughly unchanged, but household employment decreased less sharply than the two previous months. Most economists expect the jobless rate, a lagging indicator of activity, to continue to rise the next couple of months even as the economy turns around. Producers need not hire new workers in the initial stages of an upturn, relying instead on higher output from existing employees.

Average hourly earnings rose 0.5 percent in December for the second straight month, keeping the yearly rate under 4.2 percent for the third straight month. This doesn't represent an acceleration in hourly earnings, but rather the fact that higher paid workers who have more experience tend to be the last fired while younger workers with lower wages are the first to go. Consequently, average hourly earnings may tend to rise but do not represent inflationary pressures.

NAPM becomes ISM
The National Association of Purchasing Management changed its name at the beginning of the year to the Institute for Supply Management. The NAPM will now be known as the ISM, perhaps to be pronounced "is-em" in market parlance. The ISM produces manufacturing and non-manufacturing surveys. The manufacturing ISM increased to 48.2 in December from 44.5 in November. Despite the jump in the index, any level below 50 percent still reflects contracting activity. In contrast, the non-manufacturing ISM index jumped to 54.3 from 51.2 in November. Thus, both the November and December levels indicate that non-manufacturing activity was growing, albeit at a moderate pace.