Good Friday AM,
All about the jobs report today.
U.S. payrolls grew by 216,000 in December and the jobless rate held steady at 3.7%. Markets sold off on the news. The 10-yr climbed to 4.08, mortgage bonds were off 30bps. The details of the Jobs report started to emerge and the backward revisions of 71k to the jobs data and the weak ISM (institute of supply management) report, stopped the bleeding for a bit. Bonds turned positive on the day briefly, but have since gone on sale again. The 10-yr at 4.03 and Mortgage Bonds -30bps. The biggest surprise in the report though (and why the unemployment rate stayed at 3.7%) was that 676,000 people left labor force. No explanation yet on who or why, but this is a big number and would have made a big adjustment to the unemployment rate. And this is why we don’t float into big data. You never know… the bond market will rebound but it will take some time.
Here are some more details on today’s jobs report:
December’s 216,000 rise in payrolls was stronger than Wall Street expected, and the unemployment rate stayed at a very low 3.7%; Wall Street expected an increase. And yet the overall picture shows the job market is not heating up again but maintaining a healthy tempo. With October and November revised down, private payrolls growth averaged just 115,000 in the last three months. That’s tied for the lowest since mid-2020, but still above the long-run equilibrium rate given underlying demographics. And while healthcare, government, leisure and hospitality again accounted for the lion’s share of job growth, 59.6% of all private industries added workers, a relatively healthy breadth.
Today’s jobs report doesn’t scream “change your policy stance immediately” for the Federal Reserve.
In fact, it doesn’t change much of anything and instead highlights the big swirl of uncertainty facing monetary policymakers this year. If officials were worried about the lagged impact of their rate hikes, they probably can still worry about that—see how the revisions continue to occur in the direction of fewer jobs. If they were worried about overheating, they can probably worry a little less because private-sector hiring is at its lowest level of the year (using a three-month moving average) and the index of aggregate weekly payrolls, which combines hiring, wages, and hours worked for private-sector employees, is running around 4.3% at a three-month annualized rate, well below 5%-6% rate seen earlier in the year.
More troubling was the 676,000 plunge in the labor force.
Partly that reflects the inherent volatility of the household survey. That survey showed employment dropping 683,000, which is why the unemployment rate didn’t fall.
Nonetheless, the labor force seems to have stopped growing in the last three months and the participation rate has edged down. Either a cooling labor market is pulling fewer people off the sidelines, or the pool of eligible workers really is running low.
U.S. construction employment hit a fresh record despite the Fed’s campaign to quash inflation by raising its benchmark interest rate to a 22-year high. Higher borrowing costs typically curtail construction activity. Instead, strong demand for new homes pushed residential building employment to its highest level since the 2007 housing bubble, and government subsidies (for semiconductor and battery factories, especially) have helped push nonresidential construction employment to an all-time high. Altogether, more than 8 million people are employed across the sector.
Please remain safe and healthy, enjoy the weekend, and first make today great!