Market Insider

Job Creation Improves, but Slowly in January


Employment growth in January was likely more sluggish than in December, but one tiny glimmer may be an increase in hiring by small and startup businesses.

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“We’re starting to see it  under-the-radar, and that’s exactly what you’d expect to see,” said Diane Swonk, chief economist at Mesirow Financial. For one, “The quit rate started to pick up.. and people don’t do that unless they have another job. It’s a little bit of a silver lining in what’s still a very dark cloud.”

Economists expect to see about 150,000 nonfarm payrolls added in January, down from a surprise 200,000 in December, and they warn the seasonal factors that drove up December’s datamay impact January’s report. In December, 42,000 courier jobs were added, to accommodate holiday package deliveries, and it is likely those same jobs will be lost in January, as they have been in past years. Retailers, in both November and December, added a total of 67,000 workers.

“It will be a soft report, a payback for December,” said Moody’s chief economist Mark Zandi.

“Weather helped construction, and if you take those two (loss of seasonal jobs) things into account, we’ll probably get a total 100,000 increase in payrolls. The average for December and January is 150,000, and that probably is where job growth is today,” he said. “It’s okay in an economy at full employment, we’d be happy with that. But given where unemployment is, it’s discouraging. But we are moving in the right direction, and slowly but surely the jobs market is improving.”

Zandi agrees that small business and startups may be adding more employment. He said the last official government data on hiring by business size was released a year ago, and at the time, companies with more than 1,000 employees were leading hiring and small businesses were lagging.

“I sense that small business growth is picking up, and that would be consistent with the household data,” said Zandi.

The household survey is a sample survey based on data from households versus the nonfarm payrolls, based on payroll data from businesses and government agencies. Since August, the household survey  has averaged job increases of about 268,000 per month, outpacing nonfarm payrolls.

Swonk said that small business creation may be showing up in those household numbers but it would still be a trickle. “We’re still talking about marginal numbers…We’re cautious because it doesn’t take much to snuff out a small business,” she said.

William Dunkelberg, chief economist for the National Federation of Independent Businesses, said he’s not looking for much in terms of small business job creation though he had not yet reviewed January NFIB data. “I’m not looking for a strong number (in the jobs report),” he said, noting the 150,000 consensus sound about right.

“I’m not looking for a lot since a lot hasn’t really happened. It looks like things slowed down in December, and November was best,” he said. But he noted, like the other economists, that the small business creation data will be hard to decipher.

“Those data we only get with a long lag. It was true in 2010 , we started to have more (business) births than deaths,” he said.

The government is releasing revisions dating back three years with Friday’s employment report, which is released at 8:30 a.m. EST. Economists also expect to see the unemployment rate stay unchanged at 8.5 percent.

Who’s Hiring

Swonk said she believes there’s a trend underway, similar to one in the 1990s, where small business development is being fostered by larger companies that are outsourcing and are reluctant to  add workers to their own payrolls. She expects to see nonfarm payrolls for January of 118,000, with 127,000 additions in the private sector.

To illustrate her point, Swonk said she recently discovered a program in Chicago where big health care companies are spurring new job growth by working with local universities and fostering business formation. The program is not new, but it highlights an important trend and one that is not just linked to the pharmaceutical industry.

Todd Smith works at a small biotech company in Chicago that has been adding workers.  Smith is senior vice president of marketing and business development at Horizon Pharma, which has grown from 47 employees to 188 in the last year. He and the company’s CEO both had worked previously at Abbott Labs.

Horizon last summer raised $49.5 million in an IPO, as it prepared to launch its first drug in the US, DUEXIS, an osteoarthritis and rheumatoid arthritis drug, for patients with gastrointestinal sensitivity. “That’s allowed us to be one of the fortunate ones to be hiring people in this economy,” he said, adding there are a lot of good candidates available from big pharma that also have smaller startup experience.

Smith said the company is also planning to add more staff later on. It has a second drug pending FDA approval for rheumatoid arthritis, called LODOTRA, which is now being sold in Europe.

Pharmaceutical industry employment was hit hard in the recession. Industry employment peaked in 2007 at 295,000 workers, and fell by nearly 10 percent, to a trough of 269,100 in early 2011, Zandi said. It has slowly risen to 275,000, as of November and those jobs could include tiny startup biotech firms, as well as major pharma, which laid off tens of thousands of workers due to mergers and regulatory changes as well as drugs coming off patent.

“It’s one of those times in history where you have some of the best people - in spite of what they do - losing jobs,” said Smith. Smith said Horizon hopes to continue adding as it grows.

“As we continue to meet milestones, we will continue to build out,” he said.

He also said because his company is in Chicago, he did not need to move and there are plenty of professionals that can be hired locally. He said the same trend has been apparent in places like New Jersey, where biotech firms are growing up around bigger industry names.

Besides the jobs report, another clue to hiring will be reported in Friday’s non manufacturing ISM number, which shows service sector activity. The number is released at 10 a.m., as are factory orders data.

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