In our preview of the December payrolls report, we said that the big risk is a big upside surprise in the form of "good news being bad news", and sure enough, and that's precisely what happened when the BLS reported that in December the US added a whopping 312K jobs, far above the 184K expected, and the highest since February 2018. The total number of payrolls surged above 150 million for the first time ever, to 150.263 million to be specific.
Meanwhile, November's print was revised up from +155,000 to +176,000, and the change for October was revised up from +237,000 to +274,000. With these revisions, employment gains in October and November combined were 58,000 more than
previously reported. After revisions, job gains have averaged 254,000 per month over the last 3 months.
In case there was any confusion, this was a blowout number, as Bloomberg economist Tim Mahedy writes:
This is the strongest employment report of this economic cycle -- hands down. While we've seen greater job gains in some months, the plus-300,000 number along with another increase in average hourly earnings clearly signals that the economic expansion ended 2018 on strong footing. Perhaps most surprising was the two-tenths rise in the unemployment rate due to an increase in participation. It's one month of data, but talk of the Fed cutting rates in the near future should be off the table for now.
Putting the number in context, this was the biggest beat since June 2016... which may not be such a good thing as the last 2 big beats both saw a big plunge the next month.
Looking at some sectors:
- Oil and gas extraction payrolls rose 10,200 from a year earlier.
- Gasoline stations payrolls rose 1,300 in Dec. after rising 1,800 in Nov.
- Pipeline transport payrolls fell 200 in Dec. after falling 200 in Nov.
- Petroleum and coal payrolls rose 1,300 in Dec. after falling 1,100 in Nov.
It wasn't just the scorching payrolls number, but also the average hourly earnings print, which jumped by 3.2%, higher than both the November 3.1% and the 3.0% consensus; in fact it was the highest number since April 2009!
The unemployment rate rose from 3.7% to 3.9%...
... as the labor force participation rate rose above 63% for the first time since March 2014.
Commenting on the rise in ht unemp rate, Bloomberg economist Yelena Shulyatyeva said that "the increase in the unemployment rate was entirely driven by rising participation, testament to the strong economy and robust labor-market attracting people from the sidelines."
Some more details from the report:
- Payroll employment rose by 2.6 million in 2018, compared with a gain of 2.2 million in 2017.
- Employment in health care rose by 50,000 in December. Within the industry, job gains occurred in ambulatory health care services (+38,000) and hospitals (+7,000). Health care added 346,000 jobs in 2018, more than the gain of 284,000 jobs in 2017.
- In December, employment in food services and drinking places increased by 41,000. Over the year, the industry added 235,000 jobs, similar to the increase in 2017 (+261,000).
- Construction employment rose by 38,000 in December, with job gains in heavy and civil engineering construction (+16,000) and nonresidential specialty trade construction (+16,000). The construction industry added 280,000 jobs in 2018, compared with an increase of 250,000 in 2017.
- Manufacturing added 32,000 jobs in December. Most of the gain occurred in the durable goods component (+19,000), with job growth in fabricated metal products (+7,000) and in computer and electronic products (+4,000). Employment in the nondurable goods component also increased over the month (+13,000). Manufacturing employment increased by 284,000 over the year, with about three-fourths of the gain in durable goods industries. Manufacturing had added 207,000 jobs in 2017.
- In December, employment in retail trade rose by 24,000. Job growth occurred in general merchandise stores (+15,000) and automobile dealers (+6,000). These gains were partially offset by a job loss in sporting goods, hobby, book, and music stores (-9,000). Retail trade employment increased by 92,000 in 2018, after little net change in 2017 (-29,000).
- Over the month, employment in professional and business services continued to trend up (+43,000). The industry added 583,000 jobs in 2018, outpacing the 458,000 jobs added in 2017.
So what does the Fed do now: pressured on both sides, on one hand by the sliding market which demands rate cuts, and on the other by the overheating labor market where wages appear to be on the verge of breaking out.
To be sure, as BBG's Steve Matthews notes, it's not a clear cut picture:
For the Fed, it was extremely unlikely there could be any possible move until March given its commitment to gradual rate hikes. So while today’s jobs report will be closely monitored by the central bank, the actual impact on policy seems pretty low. That’s because we’ll have gotten January and February employment updates by then, plus revisions to December.
By then, the Fed should know whether the most disturbing recent signals -- such as the ISM report -- are being reflected in the labor market, and the FOMC will know whether markets have continued to slide or have recovered some.
Hopefully we get the answer from Jay Powell in just a few hours when he speaks later this morning.