Middling Jobs Report Leaves Fed Expectations Unchanged
- Payroll Employment increased by 156,000 jobs in December, a little below expectations.
- The Unemployment Rate for December increased inconsequentially to 4.7 percent.
- Average Hourly Earnings jumped by 0.4 percent for the month, after easing in November.
- Average Weekly Hours were unchanged at 34.3 in December.
A middling 156,000 net new jobs were added to the U.S. economy in December. This was a little below expectations, but not dramatically so. October and November payrolls were revised up on net by 19,000 jobs. Over 2016, an average of 180,000 net new jobs were added per month, stepping down from the robust +200K per month averages of 2014 and 2015. A flattish household employment survey for December (+63,000 jobs), plus a moderate 184,000 worker gain in the labor force boosted the unemployment rate by one-tenth to 4.7 percent for the month. This should be interpreted as noise and not as a sign of increasing slack in the labor market. Other measures, including generationally low unemployment insurance claims, point to ongoing tightness in the labor market. The average workweek was unchanged at 34.3 hours. Wages jumped noticeably, up 10 cents, or 0.4 percent for the month, after falling slightly in November. Over the previous 12 months, average hourly earnings were up by 2.9 percent. With many states boosting their minimum wage rates this year, wages will be under pressure. The Fed will watch this carefully over 2017, looking for signs that wage gains are fueling increasing inflation expectations. According to the December dot plot, FOMC members are expecting about three increases in the fed funds rate this year. The fed funds futures market shows that expectations are coalescing around June 14 for the next fed funds rate hike. Perhaps the remaining two could come in September and December, implying a back-loaded schedule. However, the Fed is not wedded to that schedule. If inflation measures warm up quickly, rate hikes will come sooner rather than later.
The establishment data was mixed in December. Employment in mining industries (including oil drilling) was down by 2,000 jobs. The construction sector shed 3,000 jobs in December. Manufacturing did better than expected, adding 17,000 jobs for the month. Wholesale trade added 2,000. Retail trade gained 6,300 jobs in December. Information services gave up 6,000 jobs. Financial services increased employment by 13,000 jobs. Professional and business services was a little light, adding 15,000 jobs. Educational and healthcare added a strong 70,000 jobs in December. Leisure and hospitality served up 24,000 jobs. The government sector added 12,000.
Market Reaction: U.S. equity markets opened with losses. The 10-Year T-bond yield is up to 2.40 percent. NYMEX crude oil is up to $53.77/barrel. Natural gas futures are up to $3.29/mmbtu.
For a PDF version of this Comerica Economic Alert click here: Employment 01-06-17.