Look Ahead: Economists Look Past Jobs Report, See Return of Hiring

A good many economists agree that American companies are on the verge of ramping up hiring, even as they disagree on how many jobs were created last month.

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The December employment report is released Friday at 8:30 a.m. and is expected to show an increase of 175,000 non-farm payrolls and a decline in unemployment to 9.7 percent, from November's 9.8 percent. Some economists say the report should also show broad-based hiring and will point to a turn toward job creation.

"It feels like a light switch is about to go on," said Mark Zandi, chief economist at Moody's Economy.com. Zandi expects 160,000 non-farm payrolls, with 170,000 in the private sector.

"All the preconditions for much better jobs growth are in place—strong profits, wide margins, strong balance sheets. Demand is improving. You should get a nice boost here with the tax cuts. Confidence is improving. Credit is flowing more normally, particularly to smaller businesses. If history is a guide, this is about the time in the last two business cycles that businesses started to step up and hire," he said.

December's report follows an extremely disappointing November number, which showed meager job growth of just 39,000 and was more than 100,000 short of the expectations of Wall Street economists. This month, the forecasts range from a low of about 100,000 to a high of as much as 300,000 non-farm payrolls. Economists expect about 180,000 private sector jobs were added, and there continues to be a reduction in state and local government workers.

President Obama speaks at 11:30 am in Maryland and is expected to comment on the jobs report at that time. Federal Reserve chairman Ben Bernanke may also comment on the employment situation when he testifies before the Senate Budget Committee at 9:30 am.

Economists have been raising their jobs forecasts since ADP's private sector employment report Wednesday showed 297,000 jobs were added in December. Some economists dismiss the ADP number as an unreliable indicator. It had been trailing the actual government number for months, but last month, it actually forecast well above it, at 93,000 jobs.

Pierpont Securities chief economist Stephen Stanley said the turn in hiring is taking place over the course of several months. "I certainly think things have turned and we're in the process of seeing a sustained and significant improvement, but I don't think it's happening all at once. I'm sticking to my original forecast of 165.000. I think that's going to be accompanied by a revision in that November number. You'll see a big rebound in December, or more likely a revision in November and improvement in December," he said.

"We'll see a ramp up that doesn't happen all at once, but takes place over several months. I would think by the middle of 2011, we'll see really strong job growth of 250,000 or 300,000," he said.

Stanley added the turn may already be in for the unemployment rate, which he sees going to 9.7 percent.

"Whether the markets are positively or negatively surprised that might be another matter because it seems like after yesterday, people really built themselves up for a strong number," he said.

Seasonality Matters

Seasonality is one factor mentioned by economists for the disparity and difficulty in forecasting the end of year numbers.

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"I think there's always the issue of seasonality. There were some moves in the last couple of months that were surprising. October was somewhat better than people expected. November was significantly worse. Those moves may have been in part due to shifting seasonal factors. One thing in November that was funny was retail employment was weak when it actually looks like this was a holiday spending season that was better. You would have thought retail employment would be more, and maybe we get some payback in December," said Goldman Sachs economist Andrew Tilton.

Tilton said Goldman expects 100,000 non-farm payrolls were added in December. He said Goldman's economics team is not expecting the December report to show a turn, but they cannot rule it out either.

"In our forecast, we have growth picking up to 3.5 percent in the first quarter and 4 percent in the second quarter, and we think unemployment follows GDP growth with a very short lag. We would expect to see better employment reports in the first half of the year. If we're right on growth, you would expect to see a pickup in the first half of the year and then see the best employment reports in the second half," he said.

Tilton said December is typically a negative month for jobs, before the government seasonally adjusts the number. Seasonal adjustments are made to account for many things, including the fact that companies clean up their payrolls at year end. "The last year there was an increase was 1999," he said, when growth was 139,000 on an unadjusted basis.

Stanley said the report should show that companies are hiring across the board.

"I think it's a pretty broad-based phenomena. If you go back and look at what happened across the course of the recession, every sector was shedding workers. If the economy is going to be back to a period of normal activity, you're going to see hiring everywhere," he said.

Zandi said he expects to see a continued trend toward temporary positions, with about 25,000 temp jobs in the December total. But he also expects to start to see broad hiring as well. Construction jobs may be one area of surprise, and leisure and travel-related employment may improve because business travel is improving.

"I think we're going got get more manufacturing jobs. We're going to get a fair amount of growth in professional services, engineering , accounting, architectural, legal," he said.

Zandi also said local and state governments will continue to cut workers.

"The budget cutting continues. I thinkt he rate of job loss is abating. Last year, it was running 20,000 to 25,000 on average. I think this year, it will run closer to 10,000. I think there's more to go. They still have pretty large budget hole," he said.

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