Jobs Report Misses Badly, Earnings In Line, Dollar’s Woes Continue

Ok, here comes payrolls.

As usual, the focus will be on average hourly earnings, which have (generally speaking) dictated trading after the last six employment reports. The story is the same as it ever was against a backdrop of (basically) full employment but still subdued inflation: the market is looking for signs that wage growth is picking up while the actual headline payrolls print has been relegated to also-ran status.

Here’s what everyone was expecting:

• Change in Nonfarm Payrolls est. 190k (prior 228k)
• Change in Private Payrolls est. 192k (prior 221k)
• Change in Manufact. Payrolls est. 18k (prior 31k)
• Unemployment Rate est. 4.1% (prior 4.1%)
• Underemployment Rate (prior 8.0%)
• Average Hourly Earnings MoM est. 0.3% (prior 0.2%)
• Average Hourly Earnings YoY est. 2.5% (prior 2.5%)
• Average Weekly Hours All Employees est. 34.5 (prior 34.5)
• Dec. Labor Force Participation Rate (prior 62.7%)

Coming in, the dollar is still struggling to shake off what turned out to be its worst year since 2003. Upbeat global economic data and doubts about the extent to which the tax bill will actually deliver when it comes to boosting the greenback continue to weigh. As far as commodities go, it’s possible the tail is now wagging the dog in terms of the rally exacerbating dollar weakness. Headed into payrolls, the dollar did stage a bit of a bounce, so we’ll see how it plays out.

In Treasurys, you know the story. The curve continues to flatten and the debate rages about what that’s signaling for the economy. One thing seems certain: the market isn’t nearly as optimistic about the outlook for the U.S. reflation narrative as it was this time last year.

Among the factors Goldman says argue for a stronger December report:

• Manufacturing-sector surveys. Manufacturing sector surveys were mixed in December, but most remain at solid or elevated levels.
• Holiday transportation hiring. Transportation and warehousing payrolls have seen elevated growth in December in recent years, often followed by softer growth or outright declines in January and February.
• ADP. The payroll processing firm ADP reported a 250k increase in December private payroll employment, above consensus expectations of +190k. The report likely received a sizeable boost from the post-hurricane rebound in nonfarm payrolls over the last two months — an input in the ADP model.

And here are the factors Goldman says argue for a weaker report:

• Winter weather. We expect snowstorms during the survey period in the eastern half of the United States to weigh on payroll growth. However, we do not expect a particularly pronounced impact, as the storms were generally not severe and many concluded early in the survey week.
• Retail seasonality. We believe the timing of the November and December establishment surveys will likely weigh on retail job growth in tomorrow’s report, as the early Thanksgiving (the 23rd) probably shifted the timing of holiday retail hiring into November from December in the payrolls data.

So if you’re inclined to parse the report, you can check it against those points.

Without further ado, here are the numbers:

• U.S. Dec. Nonfarm Payrolls Rose 148k; Unemp. Rate at 4.1%
• Nonfarm payrolls, net revisions, -9k from prior two months
• Participation rate 62.7% vs prior 62.7%
• Avg. hourly earnings 0.3% m/m, est. 0.3%, prior 0.1%
  • Y/y 2.5%, prior 2.4% est. 2.5%
• Nonfarm private payrolls rose 146k vs prior 239k; est. 193k, range 155k-229k from 29 economists surveyed
• Manufacturing payrolls rose 25k after rising 31k in the prior month; economists estimated 18k, range 10k to 30k from 20 economists surveyed
• Unemployment rate 4.1% vs prior 4.1%; est. 4.1%, range 3.9%-4.2% from 72 economists surveyed
• Underemployment rate 8.1% vs prior 8.0%
• Change in household employment 104k vs prior 71k

And here’s the knee-jerk: