Labor market cools in December Labor market cools in December\images\insights\article\jobs-newspaper-magnifying-glass-small.jpg January 21 2020 January 10 2020

Labor market cools in December

But there's too much noise in the data to make any bold claims.
Published January 10 2020
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Bottom line Nonfarm payrolls in December were softer than expected, with a nominal gain of only 145,000 jobs and with downward revisions of 14,000 jobs during October and November, paced by a surprising loss of 12,000 manufacturing jobs last month. But the combination of the return of striking GM workers, production declines at Boeing, ongoing pressure from the China-U.S. trade war and calendar quirks associated with the late Thanksgiving holiday may have contributed to these disappointing results.

In addition, average hourly earnings rose only 2.9% on a year-over-year (y/y) basis in December, the slowest annualized pace since July 2018, and average weekly hours worked slipped a tick to 34.3 during each of the past three months.

However, among the highlights of today’s mixed report, the labor impairment rate (U-6) declined to 6.7%—an all-time record low dating back a quarter century, while the unemployment rate (U-3) at 3.5% held at a 50-year low. In addition, the household survey rebounded by a strong 267,000 jobs from a loss of 8,000 jobs in November, and retail added 41,000 jobs during a solid holiday season, the most in nearly three years.

So against the backdrop of the strongest ADP report in eight months (a gain of 202,000 jobs in December) and a sharp improvement in initial weekly unemployment claims over the past month, we’re inclined to take a deep breath here and ignore today’s mixed report. We will patiently await some potentially cleaner data over the next few months. The signing of the Phase One trade deal with China on Jan 15 and the FAA’s eventual approval of Boeing’s now-shelved 737 MAX jet, should boost payroll gains in coming months.

Soft payrolls and revisions December’s labor market data was weaker than expected, with a gain of only 145,000 jobs, compared with a consensus estimate of 160,000 and Federated’s more constructive forecast of 178,000. October was revised down by 4,000 jobs to a final gain of 152,000, and November was revised down by 10,000 jobs to a still-robust gain of 256,000. Government hiring in December rose by 6,000 jobs, led by local gains of 14,000 and a loss of 8,000 state workers. Consequently, private payrolls rose by 139,000 jobs in December, below consensus estimates of 153,000, with combined downward revisions of 10,000 jobs in October and November.

Household hiring bounces The admittedly volatile household survey (a leading employment indicator) rebounded with a gain of 267,000 jobs in December. That’s up sharply from a downwardly revised loss of 8,000 jobs in November, compared with gains of 246,000 jobs in October and 403,000 jobs in September.

Construction gains, manufacturing declines The construction industry leapt with the addition of 20,000 jobs in December versus only 2,000 in a weather-impaired November, 14,000 in October and 9,000 in September. The manufacturing sector lost 12,000 jobs in December (consensus estimates expected a gain of 5,000 jobs), due to ongoing production delays at Boeing and the continued China-U.S. trade war. In sharp contrast, manufacturing gained 58,000 jobs in November and lost 45,000 jobs in October, largely due to 48,000 striking GM auto workers leaving and then returning. Manufacturing had posted modest gains of 2,000 workers in both August and September.

Labor impairment, unemployment and participation rates all solid The labor impairment rate (U-6) declined to 6.7% in December, a new all-time, 25-year low, from 6.9% in November. The official rate of unemployment (U-3) held steady at 3.5% in December, matching a 50-year low. The labor force participation rate also held steady at 63.2% in December, down from 63.3% in October, a new six-year high.

Wages and hours worked disappoint The biggest let down of today’s report was average hourly earnings rose by a much weaker-than-expected 0.1% month-over-month in December, down from 0.3% gains in November and October and a 0.4% gain in August, which matched a five-year high. The y/y gain in December slipped to a much weaker-than-expected 2.9% (the weakest reading since July 2018), down from 3.1% increases in November and October and below February’s 10-year high of 3.4%. The average private work week for all employees was unchanged for the third consecutive month at 34.3 hours, down a tick from August and September. A change of 0.1 hour worked theoretically adds or subtracts 350,000 jobs to or from the economy.

Retail strong With a good start to holiday sales, retail hiring added 41,000 jobs in December, the strongest reading in nearly three years. That compares with a loss of 14,000 jobs in November and gains of 31,000 jobs in October and 12,000 jobs in September. There were job losses in each of the prior seven months.

Temps modestly positive Temporary help (a leading economic indicator) added 6,000 jobs in December, compared with 4,000 workers in November, a loss of 5,000 workers in October and gains of 10,000 jobs in each of September and August.

Improving ADP, claims and JOLTS ADP’s private-sector hiring enjoyed a powerful rebound in December, adding a much stronger-than-expected gain of 202,000 jobs (its strongest reading in eight months and well above consensus expectations for a gain of 160,000), compared with an upwardly revised gain of 124,000 in November (flashed at only 67,000 jobs). Initial weekly unemployment claims, an important leading employment indicator, spiked to a two-year high at 252,000 for the week ended December 7, 30% higher than the 49-year cycle low of 193,000 in April 2019. But a month later, on Jan. 4, claims had receded to only 214,000. The lagging Job Openings and Labor Turnover Survey (JOLTS) bounced to 7.267 million jobs in October, up 3.3% from September’s 18-month low 7.032 million jobs, although it’s still nearly 5% below its record 7.626 million in November 2018.

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Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

The Job Openings and Labor Turnover Summary (JOLTS) is conducted monthly by the U.S. Bureau of Labor Statistics.

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