December Payrolls Unexpectedly Surge As Wages Jump, Unemployment Remains Low

So much for a March rate cut.

In our preview of today’s jobs report we quoted Goldman trader John Flood who said that a “hot print was the worst case scenario” (with the whisper number around 190K also well above consensus of 175K), and as if hearing that and eager to make an already ugly week even more painful for traders, moments ago the BLS reporter that in December the US added a whopping 216K jobs, smashing estimates of 175K and coming above all but two of the 67 Wall Street estimates that make up the Bloomberg survey.

That said, we are comfortable with predicting that next month today’s print will be revised sharply lower (perhaps even below 175K, meaning today was a miss). Why do we say that? Because once again the BLS revised not just one but both previous months sharply lower:

• October revised down 45K from 150K to 105K
• November revised down 26K from 199K to 173K

This means that ten of the past 11 jobs reports have been revised substantially lower.

And as if the BLS got not a tap on the shoulder, but was being literally Corn-popped by Biden, every other metric came in laughably strong in December, starting with unemployment which remained at 3.7%, missing estimates of a rise to 3.8%.   Among the major worker groups, the unemployment rates for adult men (3.5 percent), adult women (3.3 percent), teenagers (11.9 percent), Whites (3.5 percent), Blacks (5.2 percent), Asians (3.1 percent), and Hispanics (5.0 percent) showed little change in December.

Confirming the political nature of today’s report, the unemployment rate among Black workers actually tumbled last month, to 5.2%, down some 0.6 percentage point. White unemployment rose, to 3.5%, up 0.2 percentage point. The usual narrative is that when the labor market starts turning, late in the economic cycle, the Black community is the first and hardest hit. No such indication here.

There was some unexpectedly weakness in the labor force participation rate which dropped to 62.5% from 62.8%, missing expectations of an unchanged print. That’s because the number of people not in the labor force soared from 99.695MM to 100.540MM, an 845K increase largely due to a change in historical “data.”

Even more remarkable was that wages, which were expected by many to drop (not us – thank you crazy labor union negotiations), actually came in red hot, as average hourly earnings rose 0.4%, above the 0.3% estimate, and rose to 4.1% from 4.0%, and negating expectations of a decline to 3.9%, as wage growth it appears is here to stay.

Of course, digging a little deeper in today’s report reveals the usual BLS bullshit – besides just the endless downward revisions of course: consider the usual split between the Household and Establishment surveys: here, while payrolls reportedly increase by 216K (at least until they are revised lower next month), the Household Survey showed a plunge in employment of 683K!

Some more details from the report:

• The number of persons employed part time for economic reasons, at 4.2 million, changed little in December but was up by 333,000 over the year. These individuals, who would have preferred full-time employment, were working part time because their hours had been reduced or they were unable to find full-time jobs.
• The number of persons not in the labor force who currently want a job edged up to 5.7 million in December and was up by 514,000 over the year. These individuals were not counted as unemployed because they were not actively looking for work during the 4 weeks preceding the survey or were unavailable to take a job.
• Among those not in the labor force who wanted a job, the number of persons marginally attached to the labor force changed little at 1.6 million in December but was up by 306,000 over the year. These individuals wanted and were available for work and had looked for a job sometime in the prior 12 months but had not looked for work in the 4 weeks preceding the survey. The number of discouraged workers, a subset of the marginally attached who believed that no jobs were available for them, at 346,000, was little changed in December and over the year.

Drilling deeper into the breakdown by segment, we find that the now traditional growth led by government, leisure and healthcare…

… continued apace:

• Government employment increased by 52,000 in December. Employment continued to trend up in local government (+37,000) and federal government (+7,000). Government added an average of 56,000 jobs per month in 2023, more than double the average monthly gain of 23,000 in 2022.
• In December, health care added 38,000 jobs. Employment continued to trend up in ambulatory health care services (+19,000) and hospitals (+15,000). Job growth in health care averaged 55,000 per month in 2023, compared with the 2022 average monthly gain of 46,000.
• Employment in social assistance rose by 21,000 in December, mostly in individual and family services (+17,000). Social assistance employment rose by an average of 22,000 per month in 2023, little different than the average increase of 19,000 per month in 2022.
• In December, construction employment continued to trend up (+17,000). Employment in nonresidential building construction increased by 8,000. Construction added an average of 16,000 jobs per month in 2023, little different than the 2022 average monthly gain of 22,000.
• Employment in transportation and warehousing declined by 23,000 in December. Couriers and messengers lost 32,000 jobs, while air transportation added 4,000 jobs. Since reaching a peak in October 2022, employment in transportation and warehousing has decreased by 100,000.
• Employment in leisure and hospitality continued to rise (+40,000). The industry added an average of 39,000 jobs per month in 2023, less than half the average gain of 88,000 jobs per month in 2022. Employment in the industry is below its pre-pandemic February 2020 level by 163,000, or 1.0 percent.
• Retail trade employment changed little in December (+17,000). Over the month, employment increased in warehouse clubs, supercenters, and other general merchandise retailers (+14,000); building material and garden equipment and supplies dealers (+8,000); and automotive parts, accessories, and tire retailers (+4,000). These job gains were partially offset by a job loss in department stores (-13,000).
• In December, employment in professional and business services changed little (+13,000). Employment in professional, scientific, and technical services continued to trend up (+25,000); this industry added an average of 22,000 jobs per month in 2023, about half the average monthly gain of 41,000 in 2022. In December, employment in temporary help services continued its downward trend (-33,000) and has fallen by 346,000 since reaching a peak in March 2022. Overall, employment in professional and business services changed little in 2023.

Employment showed little change over the month in other major industries, including mining, quarrying, and oil and gas extraction; manufacturing; wholesale trade; information; financial activities; and other services.

But the biggest shocker, and one you won’t hear about anywhere else, is that the number of full-time jobs actually plunged by 1.5 million in December to the lowest since Feb 2023, while part-time jobs exploded higher by 762K to the highest on record. And there was another record: in the number of multiple jobholders. We will shortly have a post breaking all of this down.

Looking at the market reaction, Bloomberg notes that bond investors got what they were looking for today: a stronger-than-forecast report — including the headline number and a drop in the unemployment rate. Investors are not willing to fade the downtick and instead are sticking with the bearish bias. Yields on 10s traded as high as 4.097% after the data and are not seeing much of a retracement lower. That’s because, with the data in hand, rate-cut odds for March are declining and there is a ton of supply coming. As mentioned Thursday, $110 billion in long-end loaded Treasury supply is slated for the week ahead. Plus, consensus for monthly corporate supply centers on about $160 billion. About $57 billion has already priced. That leaves a lot of supply yet to absorb.

That said, once we show just how ugly today’s report actually is, we wonder how long the hawkish reaction will sustain.