Did Jobs Grow Substantially in December?

Tomorrow we'll get the official unemployment report from the government, but this week some potential hints were provided from other sources. A few major reports agree: employment is improving. Yet there appeared to be reason for optimism about November's numbers as well, but then the official report slapped us in the face as the unemployment rate rose to 9.8% with a measly 39,000 net new jobs. Was December the month that the labor market recovery finally began to gain steam?

Let's start with jobless claims. Initial claims actually rose slightly during the week ending January 1st, by 18,000, according to the Labor Department. By that only brought the number up to 409,000, which is relatively low compared to the past two years. The five-week average for December was 413,200 -- 18,300 lower than the average from the four weeks of November. Continuing claims were also much lower on average last month than in November, declining by 110,500.

Even better news comes from payroll specialist ADP (.pdf). According to its monthly estimate, an unbelievable 297,000 private sector jobs were created in December. How impressive is that? It's the highest number recorded by ADP since it began calculating the tally a decade ago. To put it in perspective, the biggest monthly gain of 2010 before that was November's tally of 92,000 net new jobs.

Yet, there's some reason to take ADP's data with a grain of salt, according to Ben Herzon of Macroeconomic Advisers (h/t: Real Time Economics). He points to a big seasonal adjustment that the company takes in December as the reason for the very good result. Basically, if firms were laying off fewer workers in 2010 than in prior years, this season adjustment would be larger in December 2010 than in prior years. So it's hard to know for sure if ADP's number is mostly reflective of December hiring, in particular.

Still, another major report on the labor market by Challenger, Gray & Christmas, Inc. agrees that things got much better in December. According to its latest report, planned layoffs were the fewest last month since June 2000 at just 32,004. Of course, if firings decline, then even if hiring maintains a steady pace, net new jobs will increase.

So there's definitely reason to be optimistic about tomorrow's big number. But last month we said the same thing, and a relatively ugly report followed. At that time, ADP's numbers were the highest of the year and jobless claims were trending down. But the layoffs tally grew, which could have been an indicator that November's performance wouldn't be as impressive as we hoped. For December, however, it seems like all of the early reports have aligned. Let's hope they're right.