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First Cut: Milder payroll gains in December do not change the picture for a strong labor market

Nonfarm payrolls were up 145,000 in December, not materially different from the median market expectation. The net revision to the prior two months was a negligible down 14,000. Private payroll growth was up 139,000. While overall goods producers’ payrolls were down 1,000, it was mainly on weaker payrolls for manufacturing (down 12,000) while construction had a solid gain (up 20,000). The recession in manufacturing may be a boon to construction where difficulties in finding enough worker – especially skilled one. Service providers’ payrolls were up 140,000.  There appears to have been some late holiday hiring for retail (up 41,200) and leisure and hospitality (up 40,000), as well as continued gains for health care and social assistance (up 33,900). Government payrolls were up 6,000, probably due to hiring for the 2020 Census.

The workweek was unchanged at 34.3 hours. Increases in average hourly earnings were lackluster at up 0.1% in December from November and showed a little slackening in the underlying pace with an increase of 2.9% compared to a year-ago and was the slowest since up 2.8% in July 2018. Earnings increases by not look so good in the next month or two due to comparisons to last year when many companies hiked hourly pay and/or some states mandated higher minimum wages.

The more modest increases in payrolls and earnings for December will not change Fed policymaker’s views on the strength in the labor market. Jobs are still being added at a rate more than sufficient to absorb new workers. Payrolls increased at an average of 184,000 a month in the fourth quarter, which is hardly different from the 193,000 average per month in the third quarter.

The December Household Survey includes annual revisions. The annual revisions for the Establishment Survey will be released with the January data on Friday, February 5 at 8:30 ET.

The unemployment rate for December was 3.5%, the same as in November and holding near 50-year lows. The unrounded rate was 3.496% compared to 3.536% in the prior month. The U-6 rate slipped two-tenths to 6.7% in December, a series low. The participation rate was unchanged at 63.2% for December and has been about steady there for the past five months.

Although Chair Jerome Powell has said there may be more slack in the labor market than previously thought, it is hard to find it in these numbers. Still, the labor market increased by 209,000 as the number of employed was up 267,000 while the number of unemployment fell 58,000.

In December, the number of people employed part-time for economic reasons was down 140,000, job losers were down 118,000, job leavers were up 53,000, and new entrants to the labor force were down 30,000. It would seem that more people who want full-time work are finding it, businesses were holding on to their present workforces where they can, workers were switching jobs with confidence, and there remain constraints on the labor market in terms of available workers.

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