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Look Back: Week of December 31, 2018 capped by upside surprise for payrolls

The December 31 week was already a slow one for data releases before the government shutdown. Most of the data reports were unaffected by the partial closure. Reports from the BLS and Federal Reserve were released on time. The only numbers delayed for this week were construction spending for November (was Thursday, January 3 at 10:00) and the compilation of sales of motor vehicles for December. Neither of these are market-movers, so at least for now their absence has no particular impact.

Clearly the highlight for the week was the December Employment Situation. It would have been so even without the eye-popping headline of a 312,000 increase in non-farm payrolls. Combined with the net upward revision of 58,000 for November-October, it finished off the fourth quarter and 2018 as a whole with a definite flourish. Some of what was driving the hiring was construction and manufacturing. The former was probably in part due to recovery efforts after Hurricanes Florence and Michael, the latter extends a hiring trend for the factory sector. The probable arrival of more seasonable weather in January and signs of a slowdown for manufacturing may mean a more moderate reading in the next report. The up 0.4% month-over-month and up 3.2% year-over-year for average hourly earnings is another positive signal for the health of the labor market, and the workweek eked out a small one-tenth gain to 34.5 hours.

The unemployment rate turned higher to 3.9% in December from 3.7% in November, but this was due to an increase of new entrants and job leavers. Both of these suggest that those just starting to work and those who are presently employed are finding conditions favorable. The broader U-6 unemployment rate was unchanged at 7.6%. The oft-cited civilian participation rate reached 63.1%, the highest since it matched 63.1% in September 2017, and just below the 63.2% in September 2013.

The level of private jobs added in December in the ADP National Employment report undershot the BLS data. It pointed to an increase of 271,000 jobs. However, as it often does, it provided a reliable signal that private payrolls could bounce back from the softer reading for November.

The Challenger Report for layoff announcements and hiring intentions ended the year with continued modest levels of job cuts relative to the series history, and a mild upswing for plans to add workers.

Initial jobless claims were up 10,000 to 231,000 in the week ended December 29, but that seems to be due more to difficulties in seasonally adjusting the data during the holiday period than any hint of easier conditions in the labor market.

Unlike the employment data, the ISM Manufacturing Index provided a downside surprise with the softest reading in two years. The factory sector experienced an abrupt ebbing in the spate of new orders coming in and consequent slowing in production. Nonetheless, expansion continued. Other components – employment, inventories, delivery times – suggested that conditions were less hectic, but likely more sustainable for the long haul. The regional surveys of manufacturing had widely indicated that growth would stumble in December and that proved to be the case.

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