The December jobs report revealed an unexpected pickup in hiring, as employers added 216,000 payroll positions. A closer look, though, shows that the only unambiguously strong aspect of the jobs report was wage growth, which likely stemmed from the resolution of the United Auto Workers strike. After the jobs report, which kept alive hopes for a near-term Federal Reserve rate cut, the S&P 500 erased premarket losses, but a morning rally faded in early afternoon stock market action.
Jobs Report Hits And Misses
The 216,000 overall employment gain topped Wall Street's 164,000 forecast, according to Econoday. The 164,000 private-sector payroll rise exceeded estimates for a 127,000 gain. Meanwhile, government payrolls rose by 52,000.
However, hiring gains in October and November were revised down by a combined 71,000 jobs. November's initially reported gain of 199,000 jobs, which was boosted by a resolution of labor strikes, was revised down to 173,000.
It's possible that the job market took a turn for the better in December as inflation ebbs and markets rally, but the trend still looks quite tame.
Over the past three months, private-sector job growth has moderated to 115,000, the lowest since rehiring took hold after the Covid shutdown.
Even with the stronger-than-expected payroll gain, the total number of hours worked across the economy dipped 0.2%. That's because the length of the average workweek, which dipped to 34.3 hours from 34.4 hours, fell more on a percentage basis than employment increased.
The average hourly wage rose 0.4% on the month, vs. expectations of 0.3%. Annual wage growth of 4.1% overshot 3.9% expectations.
The strength, however, was focused on durable goods manufacturing, which saw average hourly earnings grow 0.7% on the month and 6.1% from a year ago. Wage growth over the past 12 months was the fastest since April 2009.
Outside of manufacturing, wage growth was mixed. Retail workers saw a hefty 0.8% monthly pay raise. But wages rose 0.3% on the month for private education and health services workers. Meanwhile, the 12-month pay gain for leisure and hospitality workers eased to 3.9% in December from 4.4% in November and is now lower than it has been since May 2021.
Household Survey
The headline job and wage figures come from the Labor Department's monthly survey of employers. The separate household survey details labor force participation, work status and the unemployment rate.
The unemployment rate held at 3.7%, defying forecasts of a pickup to 3.8%. But the overall picture presented by the household survey was of a weaker job market, not a stronger one.
Household survey data showed the ranks of the employed falling by 683,000. Still, the number of unemployed workers only rose by 6,000 as 676,000 people exited the labor force.
The labor force participation rate, a measure of those working or actively seeking work as a share of the 16-and-up population, fell to 62.5% from 62.8%.
Federal Reserve chair Jerome Powell has credited rising labor force participation, fueled in part by a return to pre-pandemic immigration, with producing a better-balanced job market. The influx of workers has allowed unemployment to rise from historic lows, even though job growth has remained pretty solid. The combination of moderating demand for workers and more supply has resulted in easing wage pressures and lower inflation.
Because of the volatility of household survey data, which has a higher margin of error than the employer survey, it's too soon to conclude these positive trends are changing. However, the growth of the workforce could slow if workers become less optimistic about job availability and pay raises.
Fed Rate Hike Odds
Ahead of the December jobs report, markets saw 65% odds of a rate cut by the March 20 Fed meeting. That initially dropped below 60% after the jobs report but bounced to about 66% after the jobs report, according to CME Group's FedWatch page.
For all of 2024, markets now see 53% odds of at least 1.5 percentage points of rate cuts, up from about 46% shortly after the jobs report.
S&P 500, 10-Year Treasury Yield
The S&P 500 dipped 0.1% in early afternoon action, giving up solid gains that gathered steam Friday morning after a soft reading on service-sector activity. The S&P 500 is trying to break a four-session losing streak. The S&P 500 dipped 0.3% on Thursday to fall 2% below its 52-week high on Dec. 28.
The 10-year Treasury yield, whose tumble from October's peak near 5% was key to the S&P 500 rally last fall, also reversed course lately. The 10-year yield, after falling as low as 3.79% on Dec. 27, had rebounded to 3.99% as of Thursday's close. The 10-year yield jumped to 4.08% after the jobs report, then fall back below 4% before climbing to 4.05% on Friday afternoon.
A soft reading issued at 10 a.m. for the Institute for Supply Management's service-sector index, which unexpectedly fell to 50.6 in December from 52.7 the prior month, added fuel to the morning's stock and bond rally.
Be sure to read IBD's The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.
