Payrolls grew by 223k in December, 20k more than expected but the two prior months were revised down by 28k so let’s call it a push. But, the workweek fell to 34.3 from 34.4 so adjusting for that, this data point was softer. In contrast, the household survey saw a big jump of 717k jobs and when combined with the rise in the labor force of 439k, the unemployment rate fell to 3.5%, back to the level seen before Covid hit. The all in U6 fell to 6.5%, the lowest dating back to 1994 when this figure was first calculated.
Average hourly earnings grew by .3% m/o/m, one tenth less than expected and November was revised down by 2 tenths. Versus last year, they were up by 4.6% vs 4.8% in the two months before and above 5% before that. For perspective, the pre Covid pace was 2.5%. Combined with the lower workweek as mentioned saw average weekly earnings weakened to 3.1% y/o/y from 3.6% in the month prior. The participation rate did clock in at 62.3%, up 2 tenths m/o/m. This is still below the February 2020 level though of 63.3%. The key 25-54 cohort saw its participation rate up by one tenth to 82.4% vs 83% in February 2020. Job leavers as a % of the unemployed rose to 14.4% but just getting back the fall last month.
The service sector added 180k vs 175k in November and 170k in October. Leisure/hospitality and education/health, two sectors where physical bodies are needed on site, led the gains. Retail added jobs for the first time in 4 months. Of note though, temp jobs (a leading indicator of permanent hiring), saw jobs lower for a 5th straight month. On the goods side, 40k jobs were added vs 27k last month and vs 49k in the month before. Manufacturing added 8k, the same seen in November. Construction hired a net 28k.
Bottom line, there were some really mixed signals in today’s data. While payrolls were as expected, the household survey showed some big catch up to its recent weakness. And as for payrolls, the 3 month average fell to 247k vs the 6 month average of 307k, the 2022 average of 375k and the 2021 average of 562k, a clear trend. The workweek fell to the lowest level since April 2020 and wage growth moderated and remains below the rate of inflation. As for what this all means for the Fed, I don’t think any opinions will be changed today because of all the conflicting messages but I still believe the Fed is almost done hiking rates and maybe we have 50 bps left. Either way though, rates will be HIGHER FOR LONGER. Treasuries are up with the 2 yr yield down by 6 bps but after rising by 10 bps yesterday.
Average Workweek
Average Hourly Earnings