Strong Payroll Report Signals Economic Resilience
Summary
- Widespread job gains in December.
- Jobless rate edges down.
- Earnings pressures ease.
December payroll employment gains of 256,000 far exceeded expectations of a 150,000 rise, pointing to a resilient economy and suggesting that the Fed may be on hold for longer than previously anticipated. Uncertainty about the course of Fed policy has heightened focus on the employment report in recent months, as markets have tried to gauge the pace of policy easing. Today’s figures gave the first clean reading on the labor market in several months after distortions from weather and strikes.
The reading from the household survey was very strong as well. The unemployment rate edged down to 4.1% in December from 4.2% in November. Markets had expected an unchanged reading of 4.2%. The December unemployment rate decline reflected a solid rise in the labor force of 243,000, a jump in employment of 478,000, and a decline in unemployment of 235,000.
The household survey revealed that the number of job leavers jumped for the second straight month, suggesting increased confidence in the labor market. Also, the number of people working part-time for economic reasons fell for the fourth consecutive month.
Payrolls have been extremely volatile in recent months. Three of the past five readings have exceeded 200,000, while the other two figures fell short of 100,000. Through this volatility, the underlying trend over six-month spans hovered near 140,000 by November. The December figure pushed the six-month average payroll gain up to 165,000.
The December gain in payrolls was widespread across services. Goods-producing payrolls declined by 8,000, reflecting continued weakness in manufacturing. But private services added 231,000, which was the biggest gain since May 2023. Within services, healthcare and social assistance continued to post the biggest gain at 70,000, with leisure and hospitality adding 43,000. Government employment remained solid as well, rising 33,000.
While the payroll gains were undoubtedly strong, the average workweek and average hourly earnings did not signal renewed strength. The workweek remained at a lackluster 34.3 hours and hourly earnings increased by 0.3%. That lowered the year-to-year rise to 3.9%, probably reflecting the ongoing normalization of job openings.
The strength in this report suggests that Fed policy will remain tighter for longer. The bond market already has responded, with the 10-year Treasury yield rising 6bps to 4.74%, which is the highest since October 2023. Futures prices also suggest that markets are pushing out the timing of expected rate cuts. It will be important to monitor future employment reports to see if the December strength continues.
The labor market data are contained in Haver's USECON database. Detailed figures are in the EMPL and LABOR databases. The expectations figures are in the AS1REPNA database.
Peter D'Antonio
AuthorMore in Author Profile »Peter started working for Haver Analytics in 2016. He worked for nearly 30 years as an Economist on Wall Street, most recently as the Head of US Economic Forecasting at Citigroup, where he advised the trading and sales businesses in the Capital Markets. He built an extensive Excel system, which he used to forecast all major high-frequency statistics and a longer-term macroeconomic outlook. Peter also advised key clients, including hedge funds, pension funds, asset managers, Fortune 500 corporations, governments, and central banks, on US economic developments and markets. He wrote over 1,000 articles for Citigroup publications. In recent years, Peter shifted his career focus to teaching. He teaches Economics and Business at the Molloy College School of Business in Rockville Centre, NY. He developed Molloy’s Economics Major and Minor and created many of the courses. Peter has written numerous peer-reviewed journal articles that focus on the accuracy and interpretation of economic data. He has also taught at the NYU Stern School of Business. Peter was awarded the New York Forecasters Club Forecast Prize for most accurate economic forecast in 2007, 2018, and 2020. Peter D’Antonio earned his BA in Economics from Princeton University and his MA and PhD from the University of Pennsylvania, where he specialized in Macroeconomics and Finance.
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