Goldman's Payrolls Postmortem: Weak Job Report But Fed Still Tapers Another $10 Billion In January
The firm that advises its former employee Bill Dudley on how to run the New York Fed, speaks. Goldman's bottom line: bad jobs report, the weather was at fault (and apparently all those economists who had expectations of a 200K print were unaware it was cold out there until today) but the Fed will still taper by another $10 billion in January.
BOTTOM LINE: The December employment report was broadly weaker than expected, although some of the disappointment was likely due to bad weather. The unemployment rate unexpectedly declined due to a drop in participation.
1. Nonfarm payroll employment grew only 74k in December (vs. consensus 197k), the weakest increase since 2011. Colder-than-normal weather likely played some part in the disappointment, as construction employment declined 16k (vs +19k in November) while leisure and hospitality employment grew 9k (vs. +20k in November). However, job growth was weaker across sectors in December, including a particularly sharp slowdown in health and education services (flat vs. +41k in November). Couriers and messengers, a category that has sometimes shown outsized December moves in recent years, fell only 6k. Government employment also subtracted from job gains, as state and local employment declined 11k after stronger growth in recent months.
2. The unemployment rate declined by three-tenths to 6.7%, however the drop was largely due to a two-tenths decline in the participation rate to 62.8%. Employment rose 143k according to the household survey, although "payroll-consistent" employment?adjusting for definitional differences between the two surveys?fell by 8k. Also from the household survey, the number of individuals who reported not being at work due to bad weather was 273k, above the December average of 138k, and consistent with a negative weather impact in the report. This estimate, however, is very likely larger than the true weather impact on payroll employment.
3. Average hourly earnings rose a smaller-than-expected 0.1% (vs. consensus +0.2%). The average workweek also fell by one-tenth of an hour to 34.4 (vs. consensus 34.5), although the worsening could reflect a temporary weather effect.
4. The information in today's employment situation report does not change our expectation that the Fed will continue to taper its asset purchases by $10bn at the January
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