While it is safe to say that the Fed - and markets - will largely ignore today's payroll print in a time when the central bank is injecting $100BN in in liquidity every month regardless of the macro data, it is still notable that the December payrolls report was a disappointing 145K, missing expectations of 160K (and the whisper number of 180K), and 111K lower from the downward revised 256K in December (revised from 266K).
The change in total nonfarm payroll employment for October was revised down by 4,000 from +156,000 to +152,000, and the change for November was revised down by 10,000 from +266,000 to +256,000. With these revisions, employment gains in October and November combined were 14,000 lower than previously reported. After revisions, job gains have averaged 184,000 over the last 3 months.
Looking below the surface, the biggest surprise was manufacturing employment which after a surge in January as the GM strike ended, slumped once again in December, down -12,000, the second biggest drop since the summer of 2016.
The unemployment rate came in at 3.5%, as expected, however a look at the composition revealed some weakness as black unemployment jumped to 5.9%, the highest since July 2019.
There was more bad news (or good news if you are the Fed): average hourly earnings rose a disappointing 0.1% M/M in December, well below the consensus estimate of 0.3%, and just 2.9% Y/Y, which was the worst annual increase in July 2018. The silver lining: this was largely due to wages for managers and supervisors as the average hourly wages for production and non-supervisory position rose 3.7%, just shy of the cycle high recorded in November.
The slowest wage gain from the prior year in hourly pay was in construction, manufacturing, education and health services, and leisure/hospitality; from November, mining and trade/transportation pay actually declined.
Of course, lack of wage growth is just what economists were hoping for as it means the Fed will remain on hold even longer. Commenting on the report, Renaissance Macro economist Neil Dutta said "the important point here is that there is not much pressure on margins from this report. Wage growth cooled for both supervisors and nonsupervisors. Agg hours worked up just 1.1% SAAR in Q4 with GDP tracking above 2%. Tells you productivity is up and ULC down. Buy stocks." No really, he actually said that.
Looking at the sector breakdown, job gains occurred in retail trade and health care, while mining lost jobs. In 2019, payroll employment rose by 2.1 million, down from a gain of 2.7 million in 2018.
- In December, retail trade added 41,000 jobs. Employment increased in clothing and accessories stores (+33,000) and in building material and garden supply stores (+7,000); both industries showed employment declines in the prior month. Employment in retail trade changed little, on net, in both 2019 and 2018 (+9,000 and +14,000, respectively).
- Employment in health care increased by 28,000 in December. Ambulatory health care services and hospitals added jobs over the month (+23,000 and +9,000, respectively). Health care added 399,000 jobs in 2019, compared with an increase of 350,000 in 2018.
- Employment in leisure and hospitality continued to trend up in December (+40,000). The industry added 388,000 jobs in 2019, similar to the increase in 2018 (+359,000).
- Mining employment declined by 8,000 in December. In 2019, employment in mining declined by 24,000, after rising by 63,000 in 2018.
- Construction employment changed little in December (+20,000). Employment in the industry rose by 151,000 in 2019, about half of the 2018 gain of 307,000.
- In December, employment in professional and business services showed little change (+10,000). The industry added 397,000 jobs in 2019, down from an increase of 561,000 jobs in 2018.
- Employment in transportation and warehousing changed little in December (-10,000). Employment in the industry increased by 57,000 in 2019, about one-fourth of the 2018 gain of 216,000.
- Manufacturing employment was little changed in December (-12,000). Employment in the industry changed little in 2019 (+46,000), after increasing in 2018 (+264,000).
So what does all this mean? Well, the headline jobs print - while disappointing - is hardly a disaster, and confirms that the overall economy is slowing, hardly a shock. Meanwhile the fading wage reflation impulse will be wonderful news for the Fed which has already indicated it won't hike any time soon, and the lack of wage pressures only confirms that Powell will not tighten for a long, long time, if ever.