Quirky Jobs Report Blasts Arctic Air on Sanguine Outlook, U. Rate Down to 6.7 Percent
- The December Payroll Employment Survey showed a much weaker-than-expected gain of 74,000 jobs.
- The Unemployment Rate for December fell to 6.7 percent as the labor force declined by 347,000.
- Job growth was weak across most major sectors. Bad weather was likely a contributing factor.
Like a polar vortex, the official December jobs report from the Bureau of Labor Statistics puts a big chill on our previously sanguine economic outlook. Payroll jobs increased by just 74,000 in December. Countering some of the December freeze, November payroll gains were revised up from a solid 203,000 to a strong 241,000 jobs. The two-month pattern in jobs matches the pattern in the auto sales data for November and December: surprisingly strong followed by surprisingly weak. The pattern suggests that two forces were at work in keeping December payroll gains well below expectations. First was the strong November rebound from the October government shutdown. The strong November numbers look like they pulled some jobs in from December. Also, the bad winter weather in early December looks like it was a factor. There is no direct measure of weather in the jobs data but there are indications of weather effects in the details.
Labor force participation continued its downward trend, declining by 0.2 percentage points to 62.8 percent. The household survey of employment showed a moderate gain of 143,000 jobs in December, following a huge increase of 958,000 jobs in November. The labor force declined by 347,000 workers in December. As a result, the unemployment rate fell much more than anyone expected, to 6.7 percent for the month. This DOES NOT MEAN that the Federal Reserve is only a couple of clicks away from raising the fed funds rate. FOMC officials will view the unexpected improvement in the unemployment rate with a great deal of circumspection. They made it clear in the recently released December FOMC minutes that they are backing away from any narrow definition of their unemployment rate “threshold” of 6.5 percent. We expect to see a near-zero fed funds rate well into 2015. More weather effects look likely in the January data. It may take a few months to get a clean, and thawed out, view of labor market conditions.
Construction employment was down 16,000 for the month. Manufacturing gained 9,000 jobs, with gains in primary and fabricated metals. Countering the monthly trend, retail trade was a strong performer, adding 55,300 jobs in December. Information industries shed 12,000 jobs. Financial services gained 4,000. Job gains in business and professional services were weak at 19,000 for the month. Within that category, accounting declined by almost 25,000 jobs in December. Education and healthcare service normally add around 30,000 jobs per month. In December that fell to zero. Leisure and hospitality added a weak 9,000 jobs. The government sector shed a net of 13,000 jobs in December.
Market Reaction: U.S. equity markets dipped with the poor jobs data. Treasury bond yields are down at the long end. The 10-Year T-bond yield is 2.89 percent. NYMEX crude is up to $92.61/barrel.
For a PDF version of this Comerica Economic Alert click here: Employment 011014.