Crucial US Jobs Report Is Goldilocks With Asterisk

The US economy added 223,000 jobs in December, the government said Friday.

That was ahead of consensus, but not by enough to cause extreme consternation among market participants who’ve developed an acute allergy to hot labor market data.

Economists expected 203,000 from the headline print. The range of estimates, from more than five-dozen Magic 8 Balls, was 70,000 to 350,000. (Some folks were just a little bit off.)

Revisions subtracted a net 28,000 from the prior two months, hardly enough to validate increasingly shrill calls for apocalyptic adjustments. For months, people with nothing better to do have written the same blog post over and over again about purportedly imminent revisions that’ll surely reveal the “true” character of America’s labor market. We’re still waiting on those. I can be patient if you can.

If anything, the modest downward revisions to headline prints from October and November were a positive development for market participants to the extent they took the edge off readings that were “too” hot.

All told, the US economy added around 4.5 million jobs last year.

The household survey, which had fallen for two consecutive months, posted a 717,000 gain. As a reminder, history shows no obvious relationship between negative household prints and subsequent revisions to the headline NFP figures.

The household survey included revisions going back five years using an updated seasonal adjustment factor, as is custom at the end of a calendar year.

Private payrolls rose an above-consensus 220,000, near the top-end of the range, and consistent with Thursday’s robust ADP report. Consensus was 183,000.

Job gains were generally broad-based, with healthcare, construction, social assistance and mining all adding workers. Manufacturing payrolls rose 8,000, as expected, with a notable split between durable goods (which added jobs) and nondurables (which shed 16,000 positions).

Hiring in leisure and hospitality was relatively muted, at 67,000. Food services and drinking places added 26,000 jobs last month.

Leisure and hospitality remains almost 6% below pre-pandemic levels of employment.

Recall that November’s jobs report was accompanied by a very hot average hourly earnings print. Specifically, wage growth rose at double the expected monthly rate. That MoM print was revised lower on Friday, and December’s print, 0.3%, was below estimates. That was welcome news both for the Fed and markets. The 12-month rate of wage growth was likewise cooler than anticipated, at 4.6% (consensus was 5%).

The unemployment rate, meanwhile, moved back to the lows, at 3.5%. That was good and bad. Good because joblessness is bad, but bad because according to economists, too much employment is conducive to hot wage growth, which in turn keeps pressure on consumer prices.

The saving grace was the participation rate, which mercifully ticked higher. I’m not sure anyone realistically expects much additional improvement there. At this point, we’re just hoping for incremental progress.

All in all, December payrolls was amenable to a Goldilocks interpretation with an asterisk (or two or three) to account for the fact that the labor market is still plainly too hot to be consistent with price stability, or at least if your definition of price stability is 2% inflation.

“There’s nothing within the release that would imply it’s anything other than a strong jobs report with moderating wage pressure,” BMO’s Ian Lyngen remarked. “As a result, we’ll argue the 25bps versus 50bps rate hike debate now comes down to next week’s CPI print,” he added, referencing the next Fed meeting.

The Fed wants slower (but still respectable) job creation, cooler (but still robust) wage growth and higher (not lower) participation. That’s generally what Friday’s data showed, but when considered in conjunction with November’s JOLTS report, it’s obvious that the rebalancing process is nowhere near complete.