The headline December payroll gain, at 148K, was a little lighter than the consensus expected and the ADP release foreshadowed. However, November job gains were revised up by 24K jobs to an outsized 252K monthly gain. The two-month net revision was basically neutral with a net downward revision over the last two months of 9K jobs.
The moderation in job growth in December is probably a good thing, as fears were rising that economic indicators were looking too hot and could force the FOMC into a more aggressive tightening path in 2018 and beyond. Today’s jobs data should help alleviate those fears and keep the Fed on a gradual tightening path over the near-term.
The U.S. unemployment rate held steady at 4.1% in December, and the labor force participation rate held at 62.7%.
Bottom line: The labor market continues to firm but is not yet at the overheating stage.
Growth in earnings
Earnings growth did pick up a bit, with average hourly earnings advancing 0.3% in December, but November’s average hourly earnings gain was revised down to 0.1%. The year-on-year growth rate remained at a lukewarm 2.5%.
We saw the expected strength in job creation in manufacturing and construction in December, up 25K and 30K respectively, but service providers unexpectedly downshifted their hiring compared to recent months. Retail trade lost 20K jobs, financial services added only 6K, and information services gained 7K jobs. Even education and health care added only 28K jobs last month.
Markets react to payroll data
Markets are taking the fresh payroll data in stride. Treasury yields are modestly higher this morning. The 10-Year Treasury yield is up 0.4 basis points to 2.456%. The 2-10 Treasury spread narrowed to 50.2, down 0.1 basis points. The futures market probability of another Fed funds rate hike in March decreased to 81.4% from 87.6% this morning.
U.S. stock indexes are climbing again this morning. The Dow Jones and S&P 500 indexes are up 0.25% and 0.40%, respectively, while NASDAQ index is up 0.28%. Industrials, materials, and information technology sector stocks are leading the way today.
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