Hiring activity rebounded sharply in December, with hiring up 312k positions – the biggest increase since February 2018. The strong reading comes on top of significant upward revisions to the prior two months (+58k in total).
The unemployment rate did move up to 3.9%, but it was for all the right reasons. More people entered the labor market in December, taking the labor force participation rate up two tenths to 63.1%, 0.4 percentage points higher than a year ago. There are currently 6.3 million unemployed Americans compared to 6.6 million a year ago.
Hiring activity bounced back for both the goods and services sectors after a soft November. Areas of strength included healthcare (+50k), food services and drinking places (+41k), construction (+38k), manufacturing (+32k), and retail trade (+24k).
The closely watched measure of wage growth – average hourly earnings – rose an above-consensus 0.4% on the month. On a year-on-year basis, wages were up 3.2% in December, marking the third straight month of above 3% growth.
Key Implications
If this number doesn’t cheer markets up a little bit, nothing will. Shorter-term Treasury yields were up a few basis points in the wake of the release. Business confidence may be starting to show a few cracks thanks to slowing global growth and trade tensions, but the U.S. consumer is on very solid ground, with spending supported by a strong job market and decent wage gains.
With the books closed on the 2018 jobs numbers, all in it was a pretty good year. Average monthly job creation was 201k jobs, higher than 2017. The job market is one area of the economy the Federal Reserve is not worried about. We will hear from Fed Chair Powell a bit later this morning in a Q&A with his predecessors, Janet Yellen and Ben Bernanke, at the annual meeting of the American Economic Association. He is likely to emphasize once again that the Fed is not on a pre-set course. But, that it will take on board the incoming data and update its forecasts, and monetary policy setting accordingly. Markets will be listening closely to any hints he gives on how the Fed is interpreting the latest data.
As outlined in our recent forecast we expect the pace of growth in the U.S. economy to slow over the course of 2019, but to remain above the economy’s trend pace. That will help keep inflation near 2%, and is consistent with two more 25 basis point rate hikes – a far more gradual pace than the four hikes over the course of 2018.
